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Author: 


Gardner,  Edward  Hall 


Title: 


New  collection  methods 


Place: 


New  York 


Date: 


1919,  [1918] 


COLUMBIA  UNIVERSITY  LIBRARIES 
PRESERVATION  DIVISION 

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Gardner,  Edward  Hall. 

New  collection  methods ;  a  sj^stematic  treatment  of  the 
place  of  collections  in  marketing,  including  constructive 
credits,  psychology  of  collections,  procedure  and  system 
for  collection  departments,  and  the  principle  of  resale, 
by  Edward  Hall  Gardner  ...  New  York,  The  Eonald 
press  company,  1918.  1^19  • 

xviii,  467  p.    22*^™. 


1.  Collecting  of  accounts.    2.  Credit.        i.  Title 


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THE  LIBRARIES 


Graduate 

SCHOOL  OF  BUSINESS 

Library 


New  Collection  Methods 


A  Systematic  Treatment 

of 

the  Place  of  Collections  in  Marketing 


Including  Constructive  Credits,   Psychology  of  Collections. 

Procedure  and  System  for  Collection  Departments, 

and  the  Principle  of  Resale 


K^ 


Bv 


EDWARD  HALL  GARDNER,  A.M- 

A^ociatc    Professor  of  Business  Administration.  University   of  Wisconsin 
Author  of  "Effective  Business  Letters 


f        * 

I   t  t       <   ' 


-   ,  •      *    i 


(Third  Printing) 


NEW  YORK 

THE  RONALD  PRESS  COMPANY 

1919 


2. 0—  5  y  2^  V" 


Copyright,  1918,  by 
The  Ronald  Psess  Company 


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To  Edward  M.  Skinner 

GENERAL   MANAGER,   WILSON   BROTHER? 

CHICAGO 


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PREFACE 

What  President  Wilson  has  termed  "the  conservation  of 
facilities"  applies  with  special  emphasis  to  mercantile  credits 
and  collections.  To  weather  the  storm  of  war,  business  must 
increase  its  efficiency  and  prevent  waste. 

The  object  of  this  book  is  to  show  the  best  methods  of 
making  collections,  and  the  principles  underlying  them. 

The  "sales  point  of  view*'  is  the  point  of  view  of  the 
modern  credit  or  collection  man.     He  realizes  that  his  func- 
tion is  constructive,  and  that  he  has  a  part  to  play  in  the 
marketing  plan  of  his  house.     This  function  is  set  forth  in 
Chapters  III,  IV,  and  VII,  "the  Place  of  Collections  in  the 
Marketing  Plan,"  "The  Principles  of  Resale,"  and  "Selling 
and  Reselling  Credit."    The  interesting  work  of  some  of  the 
foremost  business  houses  of  the  country  in  building  the  re- 
tailer into  a  better  credit  risk  is  told  in  Chapters  XXVII  and 
XXVIII  on  constructive  credits.    The  psychology  of  the  de- 
linquent customer  has  been  analyzed,  and  the  various  appeals 
to  pride,  good-will,  etc.,  have  been  illustrated  by  extracts  from 
the  entire  range  of  interviews  and  correspondence  in  use  in 
modem  houses.    The  procedure  of  collections  is  fully  treated 
and  illustrated,  as  well  as  the  office  system  for  a  collection 
department. 

The  intention  has  been  to  make  the  book  of  service  not 
only  to  the  credit  and  collection  departments,  but  to  other 
departments  and  executives.  Chapter  XIV,  "Co-operation 
with  the  Sales  Department,"  in  addition  to  those  above  cited 
illustrates  this  purpose. 

Nine-tenths  of  business,  including  credits  and  collections, 
is  done  by  mail    Accordingly  much  attention  has  been  given 


/TT 


vt 


PREFACE 


PREFACE 


vu 


in  the  present  volume  to  the  management  and  the  psychology 
of  correspondence.  More  than  two  hundred  complete  letters 
are  given,  with  extracts  from  a  great  number  of  others,  repre- 
senting a  careful  selection  from  many  thousand  letters.  At 
the  same  time  the  collector  who  does  his  work  in  person  will 
find  most  of  the  book  applicable  to  his  problems,  especially 
Chapters  XV-XVII  on  the  psychology  of  collection,  and 
Chapters  XVIII-XXV  on  procedure.  He  can  also  make  large 
use  of  the  principles  of  resale. 

The  "new  collections"  is  not  a  simple  matter,  but  an  ab- 
sorbing and  fascinating  study,  involving  a  broad  understand- 
ing of  the  objects  of  the  business  organization.  No  man 
thoroughly  understands  his  business  problems  until  he  has 
re-examined  them  in  the  light  of  these  modern  principles. 

"Scientific  methods"  in  business  are  no  dream,  though 
doubtless  some  conscientious  objectors  will  rise  up  to  scoff 
at  them  to  the  end  of  time.  Accumulated,  formulated  experi- 
ence is  a  safer  guide  to  practice  than  rule-of -thumb.  The  acid 
test  has  been  applied  to  the  methods  presented  in  this  book ; 
they  have  been  drawn  from  practical  business,  where  their 
efficiency  has  been  proved  by  their  ability  to  produce  results— 
in  some  cases  astonishing  results— wherever  applied. 

It  is  modern  practice  to  analyze  one's  business  health,  and 
to  take  measures  for  maintaining  and  improving  it,  rather  than 
to  call  in  a  surgeon  and  receive  the  verdict,  "Too  late  to 

operate." 

From  the  very  nature  of  the  book,  my  obligations  are 
more  numerous  than  space  will  allow  me  fittingly  to 
acknowledge.  It  is  said  that  an  Englishman,  a  Frenchman, 
and  a  German  were  each  commissioned  to  write  a  book  on  the 
camel.  The  Englishman  took  the  next  boat  for  Egypt,  and 
studied  the  camel  on  the  ground;  the  Frenchman  consulted 
all  the  books  in  the  public  library;  while  the  German  shut 
himself  up  in  his  study  and  evolved  the  camel  out  of  his 


inner  consciousness.  This  book  has  been  written  chiefly  "on 
the  ground,"  and  in  consequence  owes  much  at  every  point 
to  the  business  men  who  have  generously  given  from  their 
experience  in  behalf  of  the  cause  of  better  business.  The 
nature  of  the  information  thus  conveyed  was  in  most  cases 
delicate,  in  many  confidential,  so  that  it  has  seldom  been  pos- 
sible to  make  precise  reference  at  the  point  of  quotation  to 
the  house  or  the  individual  quoted. 

Among  the  many  to  whom  I  should  like  to  express  my 
thanks,   special  acknowledgment  is  due  to   M.   W.   Cresap, 
Katherine  D.  Huber,  H.  R.  Kern,  and  H.  A.  Nelson,  of  Hart, 
Schaffner  and  Marx ;  W.  H.  Pruden,  of  Marshall  Field  and 
Company ;  F.  L.  Macomber,  of  Hibbard,  Spencer  Bartlett  and 
Company,  of  Chicago;  H.  Uehlinger,  of  Moller  and  Schu- 
mann; A.  G.  Teweles,  of  Butler  Brothers;  M.  C  Carr,  of 
Robt.  H.  IngersoU  and  Brother;  H.  Marshall,  of  Joseph  Wild 
and  Company;  George  Williams,  of  H.  A.  Caesar;  D.  E. 
Beebe,  of  The  Alexander  Hamilton  Institute ;  Bevan  Lawson, 
of  E.  R.  Squibb  and  Sons ;  Frank  Flagg,  of  Morse  and  Rogers ; 
T.  V.  Morton,  of  Doubleday,   Page  and  Company;  N.   L. 
Green,  of  Thomas  A.  Edison,  Inc. ;  V.  I.  Montenyohl  and  L. 
A.  McQueen,  of  the  B.  F.  Goodrich  Rubber  Company,  Akron, 
Ohio;  E.  S.  Wagner,  Scott  Paper  Company;  H.  A.  Black, 
Alexander  Brothers,   Philadelphia;   H.   N.   Raseley,   Norton 
Company,  Worcester;  E.  S.  Johnson,  Frank  E.  Davis  Com- 
pany, Gloucester;  F.  G.  Waner,  Jr.,  Beechnut  Packing  Com- 
pany, Canajoharie;  A.  M.  Brooke,  White  Swan  Spices  and 
Cereals,  Limited,  Toronto. 

I  am  indebted  also — as  what  worker  in  this  field  is  not? — 
to  J.  H.  Tregoe,  Secretary-Treasurer  of  the  National  Asso- 
ciation of  Credit  Men,  and  to  S.  J.  Whitlock,  President  of 

the  Association. 

It  is  an  especial  pleasure  to  express  indebtedness  to  the 
firm  of  E.  F.  Ruedebusch  and  Sons  of  Mayville,  Wisconsin, 


I      I 


•  •  • 

vm 


PREFACE 


If 


;     i 


for  material  from  their  system  for  retail  collections,  inasmuch 
as  two  members  of  this  firm  have  been  members  of  my  Uni- 
versity classes.  My  hearty  thanks  also  are  due  to  other 
former  students  who  have  successfully  applied  resale  policies 
to  their  various  lines  of  business,  and  have  contributed  to 
the  material  in  this  book. 

To  my  pubHshers,  I  owe  thanks  for  many  courtesies,  grate- 
fully remembered;  especially  to  C  B.  DuBois,  of  their  col- 
lection department,  companion  in  some  of  my  research. 

My  chief  indebtedness  is  expressed  in  the  dedication. 


Madison,  Wisconsin, 
July  I,  1918. 


Edward  H.  Gardner. 


CONTENTS 


Chapter 


Page 
I 


8 


I  The  Need  of  Collection  Reform 

The  Business  Situation 

The  Change  Not  Automatic 

Successful  Collection  Policy 

The  Time  to  Put  Our  House  m  Order 

Methods  of  New  Business 

Two  Efficiency  Texts 

How  to  Increase  Capital 

Need  of  a  Sound  Collection  Policy 

The  Need  for  Co-operation 

II  The   Test   of   Efficiency 

Increasing  the   Efficiency  of  the  Credit  Depart- 
ment .  .  -  ^ 
The  Credit  Man's  Division  of  Energy 
Sales  and   Collections   Shown    Graphically 
Factors  Affecting  an  Estimate  of  Credit  Depart- 
ment Costs                          , 
Do  Merchants   Know  Their  Costs? 
The  Wholesaler's  Interest  in  Retail  Credits 
Percentage  of  Loss  Not  the  True  Test 
The  Function  of  the  Credit  Manager 

III    The  Place  of  Collections  in  the  Marketing  Plan     17 

The  Goal  of  Credit  ,^.  ^    1     -d 

'  Collection  From  the  Point  of  View  of  the  Buyer 

A  Unified  Merchandising  Plan 
The  Co-ordination  of  Departments 
A  Non-Productive  Department? 
Problems  of  Increased  Volume 
The   Direct-Selling   Manufacturer 


IV    The  Principle  of  Resale 

Collection  Is  Resale 
Sale  and  Resale 
Reawakening  a  State  of  Mind 
The  Value  of  Resale 
The  Coming  Principle 
Are  Collections  a  Disease? 
A  Constructive  Undertaking 
Driving  Back  the  Frontier 
One  Unit  in  an  Organism 
Familiar  Illustrations  of  Resale 

ix 


33 


Chapter 


CONTENTS 


"The  Money  Is  Due  and  Must  Be  Paid" 
Resale  in  Instalment  Collections 
Are  You  Reselling  Goods  or  Credit? 


Page 


V    Using  the  Principle  of  Resale 


VI 


When  to  Use  Resale 

The  Critical  Moment 

An  "Inspirational"  Folder  Used  in  Resale 

Collect  While  the  Mental  Image  Is  Fresh 

Does  Resale  Abandon  the  Creditor's  Rights? 

Forcible  Methods  Are  Expensive 

Why  Do  Customers  Pay? 

Keeping  a  Good  Reputation 

Getting  the  Right  Goods 

Credit,  Goods,  and  Service 

Paying  to  Secure  the  Discount 

The  Value  of  the  Turnover 

The  Reasons  for  Payment  —  Summary 

Enlarging  Trade  Outlets 

Are  Resale  Policies  a  Needless  Expense? 

The  Cheapest  Method 


31 


42 


The   Quick  "Clean-Up'' 

Methods  for  the  "Short  Run" 

Getting  on  a  Sound  Basis  —  The  Solution 

How  to  Handle  a  "Clean-Up" 

Preventing  a  Relapse 

A  Lesson  From  a  Country  Editor 

The  Thousand-Dollar  Letter 

A  Reformed  Grocery  Business 


VII    Selling  and  Reselling  Credit 50 

"Credit  Is  More  Than  Half  of  Collections" 

The  Diplomacy  of  Business 

Can  Credit  Be  Sold? 

The  Price  of  Credit 

"Arouse  Interest" 

"Create  Desire" 

"Secure  Action" 

The  Best  Time  to  Sell 

Selling  Credit  to  Established  Customers 

Welcoming  a  Good  Customer 

Short   Letters  on  This   Subject 

Reselling  the  Goods 


'    ! 


VIII    Refusing  Credit  Courteously 

A  Tactful  Refusal 

Refusal  for  the  Customer's  Own  Good 

Asking  Additional  Capital 

Asking  Cash  with  First  Order 


58 


^   U 


CONTENTS 


XI 


Chapter 

IX    Information  from  the  Customer 


Page 
.    6s 


The  Property  Statement 
Showing  Where  His  Interest  Lies 
Meeting  Objections  to  the  Statement 
An  Interesting  Correspondence 
Demanding  Information 
Handling  an  Extension 
A  Letter  of  Discussion 


X    Refusal  to  Ship  Goods  .   . 

Holding  Up  the  Order 
A  Good-Natured  Appeal 
An  Ultimatum 
Making  a  Fair  Proposal 
Proposing  Instalment* 
A  Plain  Statement 
A  Last  Appeal 


74 


XI    Request  for  Credit  Statement 

Where  the   Customer   Refuses   Information 
Request  for  Credit  Information 


83 


XII    Effective   Collection    Proposals  . 

Cutting  Down  the  Order 
Turning  Down  an  Old  Customer 
Following  Up  Part  Payments 
An  Appeal  to  Fairness 
Helping  the  South 
A  Tactful  Rebuke 
The  Note  of  Finality 


90 


XIII  Giving  Constructive  Service 

"Selling"  the  Discount 
Reforming  the  Discount  Abuse 
Offering  Constructive  Service 
Using  the  House  Organ 
Envelope  Inserts 
Advertising  to  Aid  Collections 

XIV  Co-Operation   with   the   Sales   Department 

Determining  Sales  Policies 
Failure  to  Co-ordinate  Means  Loss 
The  Second  Liberty  Loan 
Linking  Arms  With  the  Salesman 
Where  the   Salesman's   Interest   Lies 
How  the  Salesman  Can  Help 
Obtaining  Information 
Education  as  to  Terms 
How  to  Avoid  Overstocking 


102 


i 


IIO 


• 

9' 


xu 


Chapter 


CONTENTS 


The  Evils  of  a  Forced  Order 

"Reselling  the  House" 

Adjusting  Grievances 

Constructive  Credit 

Watching  the  Customer 

Advising  as  to  Collection  Methods 

The  Salesman  as  Collector 

A  Friendly  Letter  that  Brought  a  Reply 

Persuading  Salesman  to  Co-operate 


Page 


XV    The  Psychology  of  Collection 


Science  Confirms  Business  Experience 
Appealing  to  Established  Ideas 
Establishmg  Impressions  of  Service 
Psychology  in  an  Interview 
What  Appeals  Were  Used? 
Psychology  in  a  Retail  Credit  Interview 
Psychology  in  Handling  "Dead-Beats" 
Psychology  in  Letters 
The  Personality  Behind  the  Appeal 
The  "Tone"  of  the  Appeal  — Diplomacy 
Methods  Useful  in  Any  Business 
Requisites  of  a  Good  Collection  Letter 
Attention  Value 
*  Personal  Reference  in  Letters 
Objection  to  Freak  Letters 
The  Attention  Value  of  Curiosity 


125 


XVI    Appeals  to  Good  Customers 


The  Value  of  Habit 

Making  Action  Automatic 

Creating  Bad  Habits 

Obtaining  Payment  or  Explanation 

"Letting  Him  Down  Easy" 

Suggest  Action  by  a  Story 

Maintaining  Respect 

Loss  of  Respect  Means  Loss  of  Trade 

Showing  Fairness 

Aiding  to  Restore  a  Rating 

"Help  Us  Protect  Your  Standing" 

Obhgation  and  Advantage 

The  Appeal  to  Pride 

Phrases  That  Appeal  to  Pride 

Urging  the  Discount 

Asking  for  His  Own  Judgment 

Local  Pride 

Granting  Extensions 

Showing  Confidence 

"Get  On  Your  Feet  Again" 

Courtesy  Awakens  Pride 

Resale  — The  Appeal  to  Self-Interest 

Appeals  to  Good-Will 


141 


Chapter 


CONTENTS 


An  Urgent  Need 
Avoid  "Poor  Mouth" 
"Co-operation"  a  Magic  Word 


••• 

xin 


Page 


XVII    Appeals  to  Thick-Skinned  Customers 157 

Varying  the  Appeal 

Appeal  to  Good  Nature 

Appeal  to  Fair  Play 

"Meet  Us  Half- Way" 

Offering  "Constructive  Credits" 

The  "General  Manager"  Letter 

Putting  It  Up  to  Him 

"A  Square  Deal"  — "Classify  Yourself 

Unwillingness  to  Take  Severe  Action 

The  Desire  to  Avoid  Annoyance 

The  Appeal  to  Shame 

Phrases  that  Awaken  Shame 

Shame  and  Family  Affection 

The  Appeal  to  Fear 

The  Lion's  Imagination 

Classifying  Customers 

Phrases  That  Suggest  Urgency 

Increasing  Severity 

The  Appeal  to  Curiosity 

Appeal  to  Saving  and  Acquisitiveness 

The  Desire  for  Success 

Other  Appeals 

The  Appeal  to  Pity 

Combining  Appeals 

Surprise  and  Impulse 

The  Turn  in  the  Road 

Impulse 

XVIII    Collection   Procedure  —  Early   Stages 179 

Questions  of  Procedure 

General  Advice 

The  Stages  of  Collection  Procedure 

The  Effect  of  Prestige 

The  Stage  of  Sale  and  Resale 

The  Stage  of  Notification 

The  Stage  of  Reminder 

Stickers  and  Rubber  Stamps 

Special  Forms 

Personal  Letters 

Some  Reminder  Letters 

Some  Crisp  Collection  Letters 

Stronger  Reminders 

Petty  Accounts 


XIX    Collection  Procedure  —  Discussion 

Constructive  Work  of  Collection 
"What  Is  the  Trouble?" 


198 


XIV 


Chapter 


CONTENTS 


Sizing  Up  the  Customer 

"Raining  in  Southern  Illinois'* 

Studying  the  Ledger 

A  Basis  of  Personal  Acquaintance 

The  "Branch  House"  Credit  Manager 

Friendly,   Earnest  Discussion 

A  Suggestive  Letter 

Three  Letters  in  Series 

Two  Lumber  Letters 

An  Unusual  Letter 

XX    Collection    Procedure  —  Urgent 


Page 


CONTENTS 


Chapter 


XV 


Page 


Various  Methods  of  Credit  Manager 

Making  Drafts  Effective 

An  Objection  to  Drafts 

When  a  Draft  Is  Refused 

A  Good  Method  of  Sending  Drafts 

A  Common  Cause  of  Complaint 

The  "General  Manager's"  Letter 

Warning  of  Legal  Action 

Other  Threats  of  Suft 

XXI     Collection  Procedure  —  The  Ultimatum 
The  House  Collection  Agency 
The  Telephone  in  Collections 
The  Registered  Letter 
The  Telegram  in  Collections 
The  Outside  Collection  Agency 
Use  of  Appeal  by  the  Agency 
The  Service  of  the  Agency 
The  Local  Attorney  as  Collector 
The  Bank  as  Collector 

XXII    Typical  Collection  Procedures  Analyzed 

Procedure  of  a  Wholesale  House 
Another  Wholesaler's  Procedure 
The  Regular  Use  of  Drafts 
A  "Red  Ink"  Statement 
Procedure  of  a  Mail-Order  House 
A  Manufacturer's  Procedure 
Canadian  Collection  by  Bank  Draft 
Procedure  of  a  Specialty  Manufacturer 

XXIII     War  Time  Collection  Procedure  .... 

Meeting  Strenuous  Conditions 

The  First  Letter 

The  Second  Letter 

Further  Correspondence 

When  Drafts  Are  Not  Paid 

When  Acceptance   Is  Not  Accepted 


ao9 


Suggesting  Resort  to  Law 
Another  "Last  Chance"  Letter 
The  Ultimatum 

XXIV    Collection  Procedure  —  Wholesale  House  .    . 
A  Wholesaler's  Form-Letter  Book 

XXV     Collection  Procedure  — A  Form-Letter  Series 

Using  Multigraph  Form  Letters 

An  Appeal  to   Pride 

Disappointment  at  No  Response 

Pressing  for  Payment 

Sending  Sight  Draft 

In  Sorrow  Rather  Than  Anger 

"The  Turn  of  the  Screw" 

A  Case  of  Unusual  Importance 

A  Letter  From  the  Branch  Manager 

Avoiding  Controversy  over  Small  Amount 


249 


257 


.  221 


XXVI    Trade  Acceptances 

The  Object  of  the  Trade  Acceptance 
Selling  the  Acceptance  Idea 
Retail  Use  of  Trade  Acceptances 
The  Acceptance  Explained  in  Detail 


266 


XXVII    Constructive  Credit  Work 


282 


233 


243 


Insolvency,  Insincerity,  or  Instalments 

Ambassadors  of  the  Diplomacy  of  Business 

Helping  the  Customer  to  Help  Himself 

Pulling  a  Gun  on  the  Overdue  Customer 

Choosing  the  Right  Medicine 

Taking  an  Inventory  of  the  Debtor 

Analysis  on  the  Spot 

A  Looted  Business 

Deceiving  a  "Silent  Partner" 

Financial  Advice 

A  StrikinGT  Success 

A  Good  Salesman  but  No  Business  Man 

"If  We  Had  Followed  Your  Advice     .     . 

Getting  the  "Big  Head" 

A  Credit  Man's  Working  Program 

Applying  the  Rod 

Constructive  Advice  at  Time  of  Sale 


ti 


XXVIII    More  Constructive  Credit  Work  .  .   .  . 

Co-operation  With  Customers 
The  Traveling  Representative 
Illustration  of  a  Constructive  Program 
The  Appeal  to  Pride  in  Selling  Credit 


303 


Nl 


XVI 


Chapter 


CONTENTS 


Industrial  Service  from  Banks 

"How  We  Can  Help  You" 

A  Diploma  from  the  School  of  Hard  Knocks 


Page 


XXIX  System  for  a  Collection  Department 313 

The  Value  of  System 
Reasons  for  Differences  in  Systems 
Wanted  — A  System  that  Works 
Systems  that  Fail 
System  for  the  Branch  Office 
The  Common  Features  of  All  Systems 
Ten  Necessary  Operations  and  the  System  They 
Require  ^ 

Six  Items  of  Equipment 
Solving  the  Big  Problems 
The  Record  of  Account  — The  Ledger 
The  Record  of  Account  — Collection  Cards 
The  Credit  File 
The  Invoice  File 
The  Correspondence  File 
A  Ledger  Correspondence  Folder 
The  Personal  Maturity  File 
The  "Master  Sheet"  Method 
Relation  to  the  Claim  Department 
The  Interval  Between   Steps 
Specifications  for  Department  Routine 
Schedule  for  Ledger  Examination 
Avoiding  Unnecessary  Communications 

XXX  Collecting   Mail-Order  Accounts 336 

Special  Collection   Programs 
A  Thirty-day  Trial  of  a  Razor 
Selling  Fish  on   Credit 
A  Triumph  for  Resale  Principles 


XXXI    Collecting  Mail-Order  Accounts 
Credit   Risk  .... 


—  An  Unusual 


♦11 


Goods  Sent  on  Approval 
Criticism  of  the  Series 

XXXII    Instalment     Collections   —   Correspondence 
Courses    

Credit  Risks  under  the  Instalment  Plan 
Correspondence  School  Collections 


343 


351 


XXXIII    Instalment  Collections  —  General  Publications  362 
Selling  Books  on  the  Instalment  Plan 
Obtaining  Credit  Information 


Chapter 


CONTENTS 


Beginning  Gently 

The  First  Resale 

The  Appeal  to  Fair  Play 

For  Apparently  Hopeless  Cases 

For  Extreme  Cases 

Before  Taking  Legal  Action 

The  Follow-Up 

Ultimatum  No.  i 

Ultimatum  No.  2 


XVil 
Page 


XXXIV    Instalment  Collections  —  Special  Publications  368 

The  Hardest  Form  of  Collection  Problem 
An  Unusual  Credit  Risk 
The  Sales  Campaign 
General  Plan  of  Collections 
The  "Good  Customer"  Series 
The  "Poor  Customer"  Series 
"Extension,"  "Cancellation," and  "Misunderstand- 
ing" Series 
"Arrears"  and  "Delinquent  Account"  Series 
General  Character  of  Procedure 


t? 


XXXV    The  Basis  of  Retail  Credits  and  Collections  .   .  385 

The  Service  Given  by  the  Retail  Store 
Teaching  Customers  to  Appreciate  Retail  Service 
Selling  Credit 
The  Retailer  Does  a  Credit  Business  at  a  Cash 

Price 
Granting  Credit 

"Selling"  a  Retail  Charge  Account 
What  Is  the  Meaning  of  a  Charge  Account? 
Objections  to  Long  Retail  Credits 
The  Reason  for  30-Day  Credit 


1 


XXXVI    Collection  Methods  of  Retail  Merchants 

The  Retailer's  Credit  Record 
The  Ruedebusch  System 
Transfer  to  Doubtful  Accounts 
Method  of  a  Small-Town  Merchant 
Getting  Them  Used  to  Statements 


396 


XXXVII    Department  Store  Collections  . 

The  Department  Store's  Collection  Problem 
Letter  When  a  New  Account  Is  Opened 
Handling  the  Customer  in  Arrfcars 
Collection  Procedure  of  a  Department  Store 
Soliciting  Charge  Accounts 
Overselling  Means  Hard  Collections 


406 


XVlll 


Chapter 


CONTENTS 


XXXVIII    Collection  op  Professional  Accounts 


The  Collector's  Function 

A  Serious  Matter  to  the  Doctor 

The  Difficulty  of  the  Doctor's  Case 

The  Strength  of  the  Doctor's  Case 

The  Need  of  Resale 

Adopting  Business  Methods 

Psychology  at  Time  of  "Sale" 

The  Force  of  Habit 

Good  Records 

Promptness  and  Regularity 

Letter  with  First  Statem«nt 

Second  Statement 

The  Third  Statement 

The  Time  for  Resale 

The  Fourth  Request 

Fifth  Request 

Further  Steps 

''Would  You  Hesitate  to  Call  Me?" 

Usmg  the  Collector 

The  Best  Time  for  Collections 

Etiquette  or  Merely  Bad  Business? 

Collections  for  Legal  Services 

Resale  Methods  for  Lawyers 


Page 
.  412 


XXXIX    Writing  the  Letter 


ii 


Important  and  Difficult  Work 

Write  Your  Own  Letters 

The  Value  of  Form  Letters 

;l^"ention   to  "Symptomatic   Detail" 

The  Department  Manual 

The  Study  of  Examples 

Visualize  the  Reader 

What  to  Say  and  How  to  Say  It 

Essential  Precautions 

Long  or  Short  Letters? 

Does  a  Delinquent  Deserve  Courtesy? 

Diplomatic  Language 

Specific  Language 

Working  for  a  Twofold  Result 

What  Action  Is  Wanted? 

Outhning  the  Letter 

An'ib'rrpr  Be^lin^L^r  ''"''""^'  ^"'  ^"•^*^°"* 


429 


New  Collection   Methods 


CHAPTER    I 

THE  NEED  OF  COLLECTION  REFORM 

The  Business  Situation 

Better  handling  of  collections  is  today  an  urgent  neces- 
sity of  business.  In  fact,  a  good  case  can  be  made  for  the 
statement  that  it  is  the  most  urgent  necessity. 

The  retailer,  the  wholesaler,  the  manufacturer,  all  have 
most  pressing  need  of  capital.  Merchandise  is  scarce,  and 
is  advancing.  The  man  who  has  bought  goods  and  sells 
them  today  at  a  dollar,  making  a  profit,  is  likely  to  find  that 
to  get  more  goods  he  must  go  into  the  market  and  buy  at  a 
dollar  and  a  half.    Where  is  he  to  get  the  half  dollar? 

The  manufacturer,  who  goes  to  purchase  raw  materials 
and  labor,  finds  his  price  advanced  by  hundreds  of  thousands 
of  dollars.  The  jobber,  obliged  to  carry  a  huge  stock,  thanks 
his  stars  if  he  has  the  ready  money  to  pay  cash  for  mer- 
chandise that  meets  the  standard  of  his  trade.  The  retail 
merchant,  coming  into  the  market  with  his  relatively  small 
cash  and  small  credit,  has  during  the  past  season  been  jour- 
neying to  the  markets  in  advance  of  the  usual  buying  period, 
fearing  to  wait  for  the  visit  of  the  salesman  lest  he  be  left 
high  and  dry  without  goods  to  stock  his  store. 

What  sort  of  terms  can  he  make  with  his  jobbers  and 
manufacturers?  How  long  will  they  be  willing — or  able — 
to  carry  him?  What  advantage  will  the  man  with  capital 
possess  over  the  man  without  capital ;  will  it  be  the  advantage 
that  fills  up  the  margin  between  a  business  life  and  death? 


!i 


t  am 

I 


i 


'  f 


i 


w 


2  NEW   COLLECTION   METHODS 

The  nearest  road  to  an  increase  in  his  available  capital 
lies  through  closer  collections. 

Competent  judges  pronounce  that  the  business  world  must 
change  for  the  future  from  an  indefinite  credit  basis  to  a 
basis  more  nearly  approximating  cash.  They  point  out  the 
impossibility  of  continuing  the  present  loose,  easy-going 
methods.  Competition  inside  the  country  will  force  these 
methods  out  of  use;  competition  with  Europe  after  the  war 
will  sign  their  death  warrant,  or  the  death  warrant  of  the 
firms  that  persist  in  using  them. 

The  Change  Not  Automatic 

But  some  business  men  are  tempted  to  believe  that  the 
change  will  come  about  automatically,  without  their  effort. 
They  interpret  ''must  be  changed"  as  ''will  be  changed."  Just 
as  some  Americans  feel  that  the  war  will  be  won  without  their 
aid,  without  their  needing  to  change  their  customary  ways  of 
doing  business,  so  many  business  men  have  a  general  feeling 
that  the  reform  of  our  lax  credit  and  collection  situation  will 
come  about  without  their  bestirring  themselves ;  that  the  gen- 
eral change  in  the  community  methods  will  sweep  them  and 
their  customers  with  it. 

True,  the  war  will  be  won  by  somebody — but  by  whom? 

And  great  numbers  of  business  men  will  benefit  by  the 
reformation  of  credits  and  collections  in  America;  but  num- 
bers will  also  be  wrecked  by  the  current  that  carries  others 
to  safety.  The  campaign  for  trade  acceptances  and  the  talk 
about  "changing  to  a  cash  basis,"  sound  pleasantly  in  their 
ears,  and  they  have  a  faith  that  somewhere  a  panacea  will  be 
found  for  all  their  ills.  The  faith  in  a  panacea  is  deep  rooted 
in  human  nature.  We  all  have  a  lurking  hope  that  somebody 
will  come  along  and  pull  the  cork  out  of  the  bottle,  pour  the 
patent  medicine  into  a  spoon,  and  put  it  in  our  mouths  while 
we  sit  happy  in  an  armchair;  and  that  thereafter  we  shall 


THE  NEED  OF  COLLECTION  REFORM 


rise  and  go  about  our  business,  freed  from  all  our  ills.  Nature 
does  not  operate  that  way.  She  demands  a  careful  diet,  steady 
habits,  a  system  purged  of  waste,  and  kept  in  condition  by  a 
right  proportion  of  rest  and  exercise,  work  and  recreation; 
and  sets  as  the  motto  of  reform,  "Nothing  without  labor." 

The  merchant  who  wishes  to  use  successfully  the  trade 
acceptance  must  first  have  it  "sold"  to  him,  and  must  then 
carry  on  a  campaign  to  "sell"  it  to  his  customers,  and  to  other 
merchants  in  his  line.  The  change  to  a  cash  basis,  if  adopted 
instantly  and  with  the  full  meaning  of  the  term,  would  shatter 
our  commercial  structure ;  men  do  not  intend  tomorrow  to  de- 
mand cash  from  all  their  customers,  nor  to  pay  cash  for  all 
their  purchases. 

The  possibility  of  changing  more  nearly  to  a  cash  basis, 
of  reducing  the  credit  period  where  it  is  unreasonably  long, 
and  of  preventing  delinquency,  is  a  possibility  that  can  be 
grasped  only  by  those  merchants  and  manufacturers  who 
educate  their  customers  into  better  habits,  and  attract  enough 
good-pay  trade  to  take  the  place  of  the  poor-pay  trade  which 
they  are  weeding  out.  While  the  courageous  and  far-sighted 
business  man  is  tactfully  and  skilfully  reducing  his  accounts 
receivable  and  abolishing  illegitimate  credit  privileges,  increas- 
ing his  capital,  maintaining  the  quality  of  his  stocks,  persuad- 
ing his  customers  of  their  advantage  in  the  new  method, 
effecting  a  change  in  their  habits  and  his  own  with  the  least 
friction;  while  he  is  maintaining  good-will  and  solidifying 
his  business  constituency — what  will  be  the  situation  of  the 
man  who  makes  no  effort?  Will  he  not  be  obliged,  when 
the  pinch  comes,  to  force  imwelcome  methods  on  customers 
who  are  unprepared  for  them?  In  the  resulting  unpleasant- 
ness, will  he  not  lose  some  trade,  and  much  good-will  and 
hard- won  confidence? 

Many  a  business  man  desires  to  reform  his  methods  and 
to  collect  the  money  due  him,  but  he  fears  to  offend  his 


^ 


I^^^ii 


4  NEW   COLLECTION   METHODS 

trade.  Or  he  becomes  more  urgent  in  collections,  meets  with 
opposition,  and  slips  back  into  his  former  attitude,  saying,  if 
he  is  a  retailer,  "You  can't  collect  your  money  in  this  town,'* 
or  "I  don't  want  to  drive  everybody  to  buy  of  the  mail-order 
houses.**  Or  if  a  wholesaler,  he  argues,  "That  may  be  all 
right  for  your  line,  but  our  trade  won't  stand  for  those 
methods.*' 

Many  another  business  man,  keen  and  alert,  sensitive  to 
changing  conditions  and  willing  to  take  advantage  of  them, 
is  deeply  interested  in  improved  methods  of  collections,  and 
is  willing  to  co-operate  with  other  men  to  put  them  into  effect. 

Successful  Collection  Policy 

Accordingly,  the  purpose  of  this  book  is  to  show  what 
collection  methods  are  proving  most  successful,  and  to  show 
what  principles  underlie  these  methods.  Its  aim  throughout 
is  to  indicate  the  importance  of  right  methods  vigorously 
applied,  and  to  treat  of  collections  as  an  integral  part  of 
the  conduct  of  successful  business,  influenced  by  other  depart- 
ments and  influencing  them.  Forethought  and  skill  are  to 
be  applied  to  collections  as  much  as  to  sales,  advertising,  buy- 
ing, or  credits.  A  haphazard  and  irresolute  policy,  or  one 
that  consists  in  nothing  but  a  few  "schemes**  which  may  not 
be  in  keeping  with  the  nature  of  the  house  and  its  business, 
or  which  may  even  discredit  the  house,  is  as  unwise  in  collec- 
tions as  in  sales,  buying,  or  credits. 

The  Time  to  Put  Our  House  in  Order 

If  this  book  has  a  theory  or  a  conviction,  it  is  that  now 
is  the  time  for  reform,  and  for  a  change  to  a  better  basis. 

For  the  sake  of  keeping  off  the  rocks  of  bankruptcy  during 
the  war,  and  of  conducting  business  with  the  least  waste,  so 
that  the  energy  of  the  nation  is  not  impaired — now  is  the 
time  to  put  our  house  in  order. 


THE  NEED  OF  COLLECTION  REFORM         5 

For  the  sake  of  increasing  the  available  capital  of  the 
nation,  and  of  mobilizing  our  credit  resources  to  meet  the 
strains  of  war  upon  our  financial  machinery — ^now  is  the 
time  to  put  our  house  in  order. 

For  the  sake  of  taking  advantage  of  the  general  state  of 
mind,  which  is  ready  to  accept  a  change,  ready  to  adopt  new 
habits  without  much  protest,  if  they  can  be  shown  to  serve 
the  common  good — ^now  is  the  time  to  put  our  house  in  order. 

For  the  sake  of  meeting  the  adjustment  after  the  war, 
which  will  bring  changes  that  no  man  can  predict;  for  the 
sake  of  weathering  the  winds  of  that  day,  which  will  shake 
the  strongest  houses;  for  the  sake  of  preparing  America  to 
meet  the  competition  of  nations  far  less  wasteful  and  more 
desperately  in  need  than  we — now  is  the  time  to  put  our 
house  in  order. 

Methods  of  New  Business 

Reformation  in  collections  is  not  the  only  medicine  needed 
by  business.  Avoidance  of  overbuying  by  retailers;  careful 
restriction  of  stocks  to  those  having  the  largest  margin  of 
utility,  in  business  of  all  types;  accounting  that  will  really 
tell  the  manufacturer  his  cost  of  production,  and  that  will 
show  the  retailer  and  wholesaler  their  cost  of  doing  business 
and  point  out  what  lines  are  profitable;  better  use  of  sales 
organization  and  advertising  to  solidify  existing  markets  an'l 
to  seek  new  ones — these  are  all  necessities,  so  urgent  that  it 
is  idle  to  determine  which,  on  the  whole,  is  most  important. 

Two  Efficiency  Texts 

But  this  can  be  said,  that  in  the  past,  two  texts  have  fur- 
nished most  of  the  sermons  preached  to  business  men  on 
the  subject  of  efficiency: 

I.  "Increase  your  turnover  of  stock."  Keep  your  capital 
at  work,  not  tied  up  in  goods  on  the  shelf. 


I 


6  NEW  COLLECTION  METHODS 

2.  "Collect  the  money  due  you."  Keep  your  capital  at 
work  for  you,  not  at  work  for  somebody  else  to  whom  you 
have  loaned  it  without  interest — for  that  is  what  the  man  is 
doing  who  fails  to  collect. 

Now  the  result  of  contemporary  conditions  is  to  make 
the  first  advice  hard  to  follow.  Owing  to  the  scarcity  of 
merchandise,  the  rise  in  prices,  the  transportation  situation, 
and  other  factors,  merchants  are  obliged  to  anticipate  their 
needs  more  largely  than  ever  before.  They  cannot  buy 
so  close  to  the  market;  they  cannot  in  most  cases  hope  to 
increase  their  capital  by  improving  the  rate  of  turnover.  This 
throws  double  emphasis  on  the  need  for  better  collections. 

How  to  Increase  Capital? 

Or  to  put  it  in  another  way.  A  business  man  needs  more 
capital,  to  compensate  for  the  increased  price  of  goods.  He 
can  get  this  in  one  of  four  ways: 

1.  He  can  reduce  his  stock  of  goods. 

2.  He  can  collect  what  is  due  him. 

3.  He  can  owe  more. 

4.  He  can  borrow  more. 

Certainly  the  last  two  are  bad  policy,  though  without 
doubt  the  seller  who  is  fortunate  in  his  supply  of  capital  will 
be  more  or  less  ready  to  share  the  burden  of  present  conditions 
with  his  customers,  and  to  carry  them  when  necessary.  Like- 
wise the  banks  will  be  called  on  to  extend  aid.  But  without 
question  the  business  man  who  is  looking  for  more  capital 
must  reduce  his  stock  and  collect  his  outstanding  obligations. 

Need  of  a  Sound  Collection  Policy 

And  nothing  is  more  certain  than  that  banks,  and  well- 
capitalized  manufacturers  or  jobbers,  will  resist  to  the  utmost 
the  attack  on  their  treasury  by  slow-pay  purchasers.  They 
will  insist,  at  all  events,  that  the  plaintiffs  come  into  court 


THE  NEED  OF  COLLECTION  REFORM        7 

with  clean  hands ;  that  they  exhaust  every  resource  to  collect 
the  money  due  them  from  their  own  customers  before  coming 
to  ask  for  extra  credit  from  the  seller.  The  seller,  too,  will 
take  more  interest  in  "constructive  credits,"  in  helping  to 
increase  the  efficiency  of  the  buyer  by  suggesting  improve- 
ments in  the  conduct  of  his  business,  and  in  the  reduction  of 
his  outstanding  accounts.  Nor  will  these  suggestions  be  lim- 
ited to  the  retail  field.  When  occasion  arises  very  few  sellers 
will  hesitate,  in  view  of  the  present  state  of  the  market,  to 
use  diplomatic  means  of  advising  purchasers  of  every  rank 
that  they  tighten  up  on  collections  first,  and  then  ask  aid. 

The  stand  that  banks  are  likely  to  take  when  asked  for 
additional  credit  is  indicated  by  their  hearty  support  of  the 
campaign  for  trade  acceptances,  which  is  designed  to  transfer 
the  credit  burden  from  the  seller  to  the  buyer,  where  it  be- 
longs ;  yet  by  a  means  which  will  not  be  too  hard  for  him. 

"Never  was  there  a  time,"  said  a  prominent  wholesaler, 
"when  we  have  had  a  better  right  than  we  have  now,  to  insist 
on  a  sound  policy  from  the  merchants  who  come  to  buy  of 
us.    And  this  means  sound  collections." 

The  Need  for  Co-operation 

Business  men  of  all  degrees  must  join  hands  if  the  best 
results  are  to  be  secured  from  the  movement  for  reform. 
One  resourceful  and  courageous  man  can  accomplish  much, 
and  if  he  uses  modem  methods  he  need  not  be  handicapped 
by  the  fear  of  driving  away  trade.  But  he  can  succeed  better 
with  the  united  support  of  houses  in  his  industry,  or  of  other 
merchants  in  his  city.  With  the  aid  of  banks,  chambers  of 
commerce,  and  associations  of  credit  men,  a  co-operative 
movement  can  be  undertaken  which  will  spread  the  reform 
through  the  community,  prevent  a  relapse  to  former  condi- 
tions, and  make  easier  the  task  of  the  resolute  business  man 
who  has  seen  the  light. 


W 


11 


CHAPTER    II 
THE  TEST  OF  EFFICIENCY 

Increasing  the  Efficiency  of  the  Credit  Department 

What  should  be  the  goal  of  the  credit  man's  endeavors? 
By  what  test  should  he  measure  his  efficiency?  Is  it  to  be 
the  percentage  of  losses  from  bad  debts?  Very  well — ^but 
after  he  has  reduced  this  as  low  as  possible,  then  what  next? 
And  is  there  any  other  test?  How  about  the  "turnover"  of 
customers,  the  number  of  customers  who  bought  last  year, 
but  whose  names  are  not  on  the  books  this  year?  In  place 
of  every  one  of  them,  some  new  account  must  be  solicited  at 
a  selling  expense  greater  than  would  be  required  in  selling 
a  customer  who  had  already  "bought  satisfaction"  from  this 
house. 

"Naturally,  the  work  of  collecting  information  about  our 
customers  and  keeping  personal  track  of  the  state  of  their 
accounts  occupies  a  good  share  of  my  time,"  says  a  credit 
manager.  "When  I  first  came  in  here,  there  was  no  system 
for  that  purpose,  and  to  establish  one  took  not  only  all  the 
hours  of  the  day  but  all  my  thought  and  energy.  Today  that 
work  is  reduced  to  routine,  and  while  it  still  requires  time, 
the  bulk  of  it  can  be  managed  pretty  easily.  That  may  not 
be  true  with  men  in  some  other  lines  of  trade,  but  we  are 
fairly  fortunate  in  our  customers." 

"Our  percentage  of  losses  was  too  high,"  says  another 
manager,  "and  I  have  just  been  spending  a  good  deal  of 
energy  in  devising  means  of  securing  more  reliable  credit 
information." 

"Just  now  I  am  educating  our  salesmen  to  see  that  their 

8 


THE   TEST   OF   EFFICIENCY 


advantage  lies  in  sound  credits,"  another  manager  will  tell 
you. 

"And  I  am  conducting  a  drive  to  increase  sales  to  old 
customers,"  says  another. 

"Anybody  can  collect  the  money — our  task  is  to  make 
merchants  out  of  storekeepers.  That  is  the  pride  and  pleasure 
of  my  job,"  says  still  another  credit  man  of  constructive 
policies. 

"My  big  task  just  now  is  to  reform  the  abuse  of  the  dis- 
count privilege,"  is  the  response  of  another  manager. 

"I  have  looked  over  our  collection  procedure,  and  find  two 
places  in  which  it  is  weak ;  I  have  devised  two  methods  to  use 
at  these  points  which  already  are  shortening  up  our  average 
credit  period,  and  reducing  by  many  thousands  of  dollars  the 
amount  regularly  outstanding  on  our  books,"  says  another. 

"In  the  last  few  months  the  work  that  has  given  me  most 
satisfaction  has  been  'selling  the  idea'  of  trade  acceptances 
to  our  customers,"  answers  another  credit  manager.  "It  took 
a  good  deal  of  my  time  and  most  of  my  thought  during  that 
period,  but  it  will  bring  in  tremendous  results." 

These  are  fair  samples  of  the  point  of  view  of  the  good 
credit  man.  He  surveys  his  task,  determines  its  opportunities, 
reduces  its  essentials  to  routine,  and  thereby  keeps  his  mind 
fresh  for  an  assault  on  some  other  part  of  his  work.  It  is  a 
lifelong  task,  because  conditions  are  ever  changing,  but  it  is 
full  of  stimulus  and  inspiration. 


I 

HI 


t  Jl 


if 


The  Credit  Man's  Division  of  Energy 

A  suggestive  diagram  showing  a  composite  picture  of  the 
foregoing  testimony  is  the  one  on  page  lo,  made  up  on  the 
basis  of  a  certain  credit  man's  experience.  It  shows  two 
columns,  each  of  which  in  his  opinion  represents  loo  per  cent 
of  opportunity.  In  the  first  are  comprised  his  regular  duties, 
each  with  a  specific  goal:  to  keep  down  losses  through  hazard- 


lO 


NEW  COLLECTION   METHODS 


THE  CREDIT  MAN'S  DIVISION  OF  ENERGY 


Working  to  educate  customers 
into  better  habits,  so  as  to  save 
interest  on  outstanding  accounts. 

12% 


Handling  collections  so  as  to 
keep  down  percentage  of  losses 
from  bad  debts. 

38% 


Collecting  information  and 
watching  standing  of  customers 
so  as  to  protect  against  loss  from 
hazardous  shipments. 

50% 


Taking  advantage  of  oppor- 
tunities for  creating  good-will, 
educating  salesmen,  holding  old 
accounts,  securing  new  business, 
employing  resale  and  construc- 
tive credits;  increasing  the  vol- 
ume and  reducing  the  selling  ex- 
pense of  the  house. 

Another   100% — 

am  I  giving  it 

attention  ? 


"/  divide  up  my  regular  functions  about  as  shown;  some  men  will  have 
to  give  less  attention  to  collections,  some  more.  Then  I  ask  myself  if 
my  other  constructive  opportunities,  which  I  figure  are  a  possible  equal  of 
the  first  column,  are  receiving  the  attention  they  should." 


THE   TEST   OF   EFFICIENCY 


II 


ous  shipments  by  watching  the  credit  standing  of  customers; 
to  follow  up  collections  and  thereby  prevent  losses  from  bad 
debts;  and  to  save  for  his  house  the  interest  on  capital 
unnecessarily  tied  up  in  outstanding  accounts.  The  other 
column  shows  opportunities  for  increasing  the  volume  of 
sales  and  reducing  selling  expense  by  improvements  installed 
all  along  the  line  of  his  activities.  "I  divide  up  my  regular 
functions  about  as  shown;  some  men  will  have  to  give  less 
attention  to  collections,  some  more.  Then  I  ask  myself,  if 
my  other  constructive  opportunities,  which  I  figure  are  a  pos- 
sible equal  of  the  first  column,  are  receiving  the  attention 
they  should.  Some  items  will  bulk  large  at  one  time,  others 
at  another;  the  division  into  percentages  is  only  suggestive." 
The  activities  represented  in  the  second  column  will  of  course 
have  a  marked  effect  on  the  efficiency  of  those  shown  in  the 
first  column,  and  may  perhaps  reduce  still  further  the  per- 
centage of  energy — a  very  different  thing  from  the  percentage 
of  time — which  they  require. 

Sales  and  Collections  Shown  Graphically 

A  graphical  representation  of  the  relation  between  sales 
and  collections  can  be  prepared  month  by  month  and  kept  year 
after  year  for  purposes  of  comparison.  The  effect  of  new 
sales  policies  or  collection  methods  or  any  steps  bearing  on  the 
results  shown  in  this  graph  should  be  noted  carefully ;  though 
it  must  be  remembered  that  results  of  this  character  are  not 
to  be  looked  for  too  early  after  the  new  method  has  been 
installed.  A  chart  with  two  lines,  one  for  sales  and  one  for 
collections,  is  kept  by  many  executives,  the  proportion  be- 
tween the  two  being  the  important  consideration. 

An  article  in  System  for  March,  19 18,  by  James  W. 
Morrisson,  president  of  The  Fuller-Morrisson  Company, 
wholesale  druggists,  Chicago,  describes  a  method  of  repre- 
senting by  a  single  curve  the  proportion  between  sales  and 


n; 


m 


si; 


k 


12 


NEW   COLLECTION    METHODS 


accounts  receivable,  over  any  desired  period.  First  obtaining 
the  average  daily  sale  for  the  two  months  past,  he  next  takes 
the  total  accounts  and  bills  receivable  for  the  last  day  of  the 
month,  and  divides  this  latter  figure  by  the  figure  showing 
the  average  sale.  If  receivables  are  $800,000  and  average 
daily  sales  are  $20,000,  the  resulting  figure,  40,  is  established 
on  the  chart.  If  the  curve  for  the  past  month  slopes  up,  col- 
lections have  been  poor ;  if  it  slopes  down,  they  are  improving. 

Factors  Affecting  an  Estimate  of  Credit  Department  Costs 

The  following  outline  has  been  drawn  up  by  the  writer 
to  represent  the  various  factors  which  should  be  taken  into 
consideration  when  estimating  the  cost  of  a  credit  depart- 
ment and  determining  its  efficiency. 
L    Direct  charges: 

1.  Accounts  charged  off  as  non-collectible 

2.  Collector's  commissions 

3.  Court  and  legal  costs 

4.  Credit  department: 

(a)  Salaries 

(b)  Rent 

(c)  Supplies,  including  printing 

(d)  Postage 

(e)  Telephone  and  telegraph 
II.    Interest  on  accounts  receivable 

III.  Loss  of  turnover  on  capital  tied  up  in  accounts  re- 

ceivable 

IV.  Loss  of  discounts  in  paying  own  bills 
V.    Lost  sales ;  lost  customers  due  to : 

I.    Harsh  or  overconservative  credit  and  collection 
policies 

2.  Loss  of  respect  through  lax  credit  and  collection 

policies 

3.  Unwillingness  to  trade  where  account  is  overdue 


THE  TEST   OF   EFFICIENCY 


13 


VI.    These  are  affected  by: 

1.  Sales  department  policies 

2.  Credit  department  policies 

3.  Collection  department  policies 

4.  Claim  department  policies 

5.  Efficient    system    in    the    credit    and    collection 

department 


Do  Merchants  Know  Their  Costs? 

Under  the  direction  of  the  State  Food  Administration, 
*n  investigation  was  recently  made  of  the  accounts  of  the 
retail  grocers  in  a  Middle  Western  city,  to  determine  the  cost 
of  the  credit  department  in  order  to  ascertain  the  amount 
which  should  be  added  to  the  price  of  groceries  for  charge 
customers,  under  the  "cash  and  carry"  plan. 

The  evidence  showed  clearly  that  few  grocers  out  of  the 
total  number  knew  where  they  stood,  or  what  their  credit 

expense  was. 

The  information  received  was  tabulated  under  the  fol- 
lowing heads: 

Average  Amount  Accounts  Receivable 

Average  Credit  Period 

Average  Number  of  Accounts  Receivable 

Average  Monthly  Amount  of  Charge  Sales 

Average  Bad  Debt  Loss 

Collection  Expense 

Bookkeeper's  Wages  and  Expense 

Total  Credit  Department  Expense 

Per  Cent  Cost  of  Credit  Department 

The  answers  given  under  the  heads  of  Average  Amount 
of  Accounts  Receivable,  and  Average  Amount  of  Charge 
Sales,  often  indicated  that  either  the  one  or  the  other  was 
incorrect,  or  that  the  figure  given  as  the  average  credit  period 


■  1 


'i 


f 

i     I 

'i 

■ 


t! 


H 


NEW   COLLECTION   METHODS 


il 


could  not  be  correct.  In  other  words,  the  merchant's  own 
figures  often  showed  that  his  customers  paid  their  bills  much 
less  frequently  than  he  supposed  they  did,  or  that  his  average 
outstanding  accounts  receivable  were  greater  than  he  sup- 
posed. 

Since  a  merchant's  entire  system  of  buying  and  paying 
for  his  own  purchases  is  dependent  on  the  time  when  he  gets 
in  his  own  money,  this  means  that  he  is  basing  his  business  on 
an  estimate  which  the  figures  from  his  own  books  show  to  be 
false. 

The  percentage  of  total  sales  required  to  maintain  the 
credit  department  was  given  by  different  merchants  all  the 
way  from  .01  to  8.2  per  cent!  Obviously  most  of  these  figures 
were  totally  unreliable. 

The  merchants  did  not  know  how  often  their  customers 
paid  them ;  they  did  not  know  how  much  their  credit  business 
was  costing  them.  It  goes  without  saying  that  they  were  not 
undertaking  a  reorganization  of  their  credit  and  collection 
methods,  because  they  were  not  awake  to  the  real  situation. 

The  Wholesaler's  Interest  in  Retail  Credits 

The  condition  just  cited  is  of  interest  to  wholesalers, 
manufacturers,  associations  of  commerce,  and  retail  and 
wholesale  associations,  as  well  as  to  the  individual  retailers 
concerned;  perhaps  the  consumer  has  as  vital  an  interest  as 
anyone.  Here  is  an  important  item  of  retail  service  that 
meets  with  official  condemnation  as  being  too  expensive  for 
a  time  of  emergency — for  the  recommendation  of  the  "cash 
and  carry"  system  amounts  to  such  a  condemnation.  But  no 
one  is  able  to  tell  what  this  item  of  service  costs.  No  one  can 
say  whether  the  charge  account  privilege  is  worth  what  it 
costs  the  retailer,  or  whether  it  could  be  so  managed  as  to 
become  worth  its  cost. 

The  manufacturer  or  wholesaler  who  is  approached  by  a 


THE  TEST   OF   EFFICIENCY 


15 


retailer  with  a  plea  for  extension  of  time  on  his  account,  is 
interested  in  helping  him  to  make  his  own  collections  as  well 
as  in  advising  him  whether  to  maintain  a  privilege  which 
has  always  been  considered  an  asset  and  a  means  of  enlarging 
and  stabilizing  trade.  The  credit  man  finds  himself  con- 
cerned with  "constructive  credits,"  and  cannot  but  consider 
the  efficiency  and  prosperity  of  his  customers  as  one  test  of 
his  own  efficiency.  If  they  fail,  he  suffers;  if  he  can  help 
them,  he  benefits. 

Percentage  of  Loss  Not  the  True  Test 

"How  low  are  your  losses?"  asked  a  former  sales  man- 
ager of  his  old  friend,  the  credit  man.  "Too  low,"  was  the 
startling  reply.  "I  am  thinking  we  must  have  lost  a  good 
deal  of  valuable  business  keeping  them  down  to  that  point." 
The  story  illustrates  the  fact  that  the  credit  man  knows  he 
has  a  constructive  function  which  cannot  be  measured  in 
terms  of  a  single  test.  His  efficiency  is  bound  up  with  the 
welfare  of  his  house.  Perhaps,  after  all,  the  turnover  of 
customers  is  the  final  test  of  the  credit  department's  efficiency. 

The  Function  of  the  Credit  Manager 

The  terms  "credit  manager"  and  "collection  manager"  as 
used  in  this  work  need  not  be  very  strictly  interpreted.  The 
function  of  collection  is  the  subject  we  are  concerned  with, 
in  every  sense  both  broad  and  narrow.  In  the  broad  sense, 
every  member  of  the  organization,  whether  president,  sales- 
man, bookkeeper,  subordinate,  or  department  head,  is  inter- 
ested in  collections  just  as  he  is  interested  in  sales.  In  the 
narrow  sense,  it  may  happen  that  a  house  has  no  officer  en- 
titled collection  manager,  or  that  it  applies  the  term  "collec- 
tions" only  to  the  work  of  attorneys,  agencies,  or  collectors 
outside  the  house.  Its  own  work  of  collection  may  be  per- 
formed entirely  by  the  credit  department,   statements  and 


ir 


i 


i6 


NEW   COLLECTION   METHODS 


reminders  being  handled  by  the  bookkeeper,  ordinary  letters 
by  the  assistant  or  territorial  credit  men,  and  special  cases  by 
the  credit  manager.  In  a  retail  store  the  manager  or  pro- 
prietor may  handle  all  collections,  or  may  have  a  system  which 
turns  over  nearly  all  this  work  to  the  bookkeeper. 

A  credit  manager  has,  of  course,  well-defined  functions 
with  regard  to  the  granting  or  refusing  of  credit,  and  this 
usually  gives  him  supervision  over  the  broad  aspects  of  col- 
lections. To  a  certain  degree  the  titles,  credit  manager  and 
collection  manager,  as  used  in  this  book  are  interchangeable, 
in  that  every  business  man  engaged  in  collections  should  have 
the  broad  and  constructive  vision  of  the  credit  manager,  and 
every  man  engaged  in  a  credit  department  should  have  the 
keen  interest  in  prompt  and  systematic  payment  that  is  bred 
into  the  good  collection  man. 


f  fl 


CHAPTER    III 

THE  PLACE  OF  COLLECTIONS  IN  THE 
MARKETING  PLAN 


The  Goal  of  Credit 

Credit  is  the  mightiest  force  in  American  business  and 
collection  is  the  goal  of  credit.  Repeated  sales,  established 
customers,  and  satisfactory  business  are  the  goal  of  both. 
Properly  appHed  credit,  exercising  a  due  regard  for  collec- 
tion, results  in  more  business  and  better  business.  The 
management  of  any  business  organization  and  the  individual 
who  has  charge  of  collection,  need  to  consider  collection, 
not  as  a  separate  department  with  a  limited  task,  but  as  a 
vital  part  of  the  organization,  co-ordinated  with  all  other 
parts,  affecting  them  and  affected  by  them. 

Collection  From  the  Point  of  View  of  the  Buyer 

If  any  man  doubts  the  need  of  harmonizing  the  pro- 
cedure of  the  collection  department  with  the  other  operations 
of  the  house,  let  him  look  at  collection  from  the  point  of 
view  of  the  buyer. 

It  is  not  uncommon  for  a  retailer  to  receive  in  the  same 
mail  an  enthusiastic  letter  from  a  sales  department  urging 
him  to  buy,  and  a  dunning  letter  from  the  collection  depart- 
ment of  the  same  house  demanding  that  he  pay  for  what  he 
has  bought.  One  of  these  departments  is  certainly  wrong,  and 
has  misjudged  the  man  to  whom  it  writes.  What  will  be 
the  effect  on  the  customer  of  such  playing  at  cross  purposes? 
The  common  example  of  failure  to  co-operate  is  afforded 
by  the  salesman  who  recklessly  oversells  his  customers,  then 
growls   at   the    "turn-down"   his   orders   receive    from   the 

17 


j 

1  - 

I* 
i 


i8 


NEW   COLLECTION   METHODS 


i  ij 


credit  department,  and  sympathizes  openly  with  the  cus- 
tomer's complaint  against  the  way  the  collection  manager  is 
pressing  him  for  payment.  This  is  not  a  pretty  spectacle  for 
the  customer  to  behold.  It  breaks  down  in  his  mind  the 
prestige  of  the  house,  makes  him  less  willing  to  heed  its 
advice  about  buying,  and  strews  thorns  on  the  path  of  the 
collection  manager. 

A  Unified  Merchandising  Plan 

The  customer  should  see  all  the  departments  of  a  house 
functioning  together  to  aid  him  in  merchandising.  He 
should  understand  that  the  credit,  sales,  and  collection  depart- 
ments, all  have  a  common  object,  i.e.,  to  aid  him  to  dispose 
of  goods  at  a  profit  for  himself  and  for  the  house  which  sells 
them  to  him.  The  purpose  of  credit  is  to  help  him  enlarge 
his  business  by  selling  more  goods  than  he  has  cash  to  pay 
for ;  the  purpose  of  sales  is  to  get  into  his  hands  goods  adapted 
to  his  needs  and  on  which  he  can  make  a  profit ;  and  the  pur- 
pose of  collection  is  to  get  him  to  pay  for  goods  already  pur- 
chased, so  that  he  can  be  allowed  to  purchase  other  goods  to 
sell  at  a  profit.    The  work  of  each  is  necessary  to  his  success 

in  business. 

It  is  hard  sometimes  for  these  various  departments  to 
realize  their  essential  unity.  They  occupy  diflFerent  offices, 
are  composed  of  men  of  different  temperaments,  and  some- 
times build  up  contradictory  policies.  But  the  buyer  sees 
them  all  as  a  unit.  Each  of  its  representatives  signifies  to 
him  the  house  as  a  whole ;  and  the  lack  of  harmony  between 
departments  shows  very  plainly  to  him.  All  these  con- 
flicting methods,  which  take  their  rise  in  the  minds  of 
men  widely  separated  from  each  other,  converge  and 
meet  in  the  morning's  mail  of  the  retailer  and  display  their 
unconscious  differences  side  by  side  on  his  desk.  The 
result  can  hardly  be  favorable  to  the  common  object  of  all 


COLLECTIONS   IN   THE   MARKETING  PLAN 


19 


departments  of  the  house— to  build  the  retailer  into  an  ever 
better  outlet  for  its  goods. 

The  Co-ordination  of  Departments 

Modern  business  takes  a  broad  view  of  collections,  and 
does  not  rest  content  with  the  theory  that  the  collection  man 
spends  half  his  energy  running  down  "dead  beats"  and  the 
other  half  in  sending  out  statements.     The  executive  today, 
whether  manufacturer,  jobber,  or  retailer,  studies  the  place 
of  collections  in  the  entire  operation  of  his  house,  that  is 
to  say,  in  its  marketing  plan.      Where  does  the  collection 
department  fit  into  the  complete  plan  of  getting  the  goods 
into  the  hands  of  the  customers?     The  entire  organization 
of   the    seller,   including   every   department    and    individual 
from  the  president  to  the  shipping  clerk,  has  a  part  to  play 
in  this  marketing  plan,  in  distributing  goods  and  in  securing 
payment   for   them.     The   marketing   function   is   especially 
noticeable  in  the  sales  and  advertising  departments,  but  it 
is  no  less  a  function  of  the  credit  and  collection  departments. 
It  is  necessary  to  study  the  place  these  latter  departments 
occupy   in   order  to   adopt   policies   which   shall   harmonize 
with  the  general  purposes  of  the  house,  and  to  insure  that 
these   departments   are  overlooking   no   constructive    oppor- 
tunity. 

Business  cannot  be  carried  on  in  water-tight  compart- 
ments. The  collection  department  which  says  or  thinks, 
''Let  the  sales  department  sell  the  goods;  all  we  have  to 
worry  about  is  getting  the  money,"  is  as  short-sighted  as  the 
sales  department  which  acts  on  the  doctrine  that  it  is  no 
concern  of  theirs  how  the  money  is  collected— their  task  is 
to  produce  gross  volumes  of  sales. 

A  Non-Productive  Department? 

Some  executives  are  said  to  slight  the  credit  and  collec- 


ill 


20 


NEW    COLLECTION    METHODS 


COLLECTIONS   IN   THE   MARKETING   PLAN 


21 


tion  departments  because  they  are  non-productive.  But  the 
number  of  constructive  opportunities  which  can  fall  to  these 
departments  when  their  function  is  carefully  studied,  redeem 
them  from  any  such  accusation. 

"I  have  been  credit  and  collection  manager/'  remarked 
a  New  York  executive,  "and  am  now  sales  manager;  but 
I  still  say  that  I  was  a  bigger  salesman  for  the  house  then 
than  I  am  today.  I  had  the  selling  point  of  view  in  all 
my  work." 

Problems  of  Increased  Volume 

Every  endeavor  to  increase  volume  of  sales  throws  a 
fresh  burden  on  the  collection  department.  If  the  increase 
is  sought  through  an  enlargement  of  the  orders  from  each 
individual  customer,  then  not  only  must  the  sales  department 
stir  itself  to  help  the  customers  dispose  of  this  unwonted 
quantity  of  merchandise,  but  the  collection  department  must 
keep  wide  awake  to  make  sure  that  the  buyer  does  not 
make  the  larger  invoices  an  excuse  for  poor  paying.  If 
a  sales  campaign  is  carried  on  in  an  unfamiliar  territory, 
somebody  in  the  house  must  study  the  methods  of  payment 
in  that  territory,  must  devise  methods  of  collection  accord- 
ingly, and  must  get  in  contact  with  the  outside  agency  that 
does  the  best  work  in  that  locality.  Perhaps  volume  is  to 
be  sought  by  selling  direct  to  the  retailer  or  to  ultimate 
consumers,  requiring  collection  methods  that  are  brand  new 
from  top  to  bottom.  It  may  be  that  a  new  class  of  trade 
is  to  be  solicited  whose  orders  will  be  smaller  and  perhaps 
more  frequent.  Then  the  house  will  demand  a  system  to 
take  care  of  them  without  undue  expense.  Perhaps  a  new 
line  of  goods  is  taken  on,  of  value  so  attractive  that  it  is 
certain  to  bring  in  quantities  of  new  orders,  but  allowing  so 
small  a  margin  that  unusually  prompt  collections  and  even 
specially  close  terms   must   go  with  them.     Thereupon  the 


collection  department  must  get  up  a   special  procedure  to 
apply  to  the  new  situation. 

Or,  suppose  a  house  has  been  competing  for  the  orders 
of  a  well-established  trade  in  a  certain  line  and  decides  to 
enlarge  its  business  by  selling  to  the  comparatively  poor 
credit  risks,  that  is,  to  a  section  of  the  trade  which  its  com- 
petitors are  deliberately  avoiding.  The  highest  intelligence 
in  matters  of  credit  and  the  greatest  promptness  of  payment 
cannot  be  expected  from  this  class  of  trade,  and  the  collec- 
tion department  must  prepare  its  weapons  accordingly.  The 
story  has  recently  been  told  of  a  manufacturer  who  estab- 
lished himself  on  the  market  by  instructing  his  salesmen  to 
call  only  on  dealers  who  had  no  credit  rating.  It  is  fair 
to  suppose  that  the  collection  department  of  this  manufac- 
turer had  no  cobwebs  in  it. 

A  line  of  "luxury"  goods  may  be  taken  on  by  a  whole- 
saler who  has  been  accustomed  to  deal  in  "utility"  goods  and 
who  expects  to  bring  in  a  new  group  of  customers  while 
he  retains  his  old  ones.  But  he  may  find  it  harder  to  get 
his  money  for  the  new  line  because  the  consumers  who  buy 
them  are  often  in  the  slow-pay  class.  Any  of  these  con- 
ditions may  induce  him  to  add  an  efficiency  man  to  the 
staff  of  his  credit  department.  Such  an  expert  can  use  his 
skill  in  constructive  credits  in  dealing  with  merchants  who 
find  it  hard  to  make  payments  under  the  new  conditions 
and  are  glad  to  receive  suggestions  in  methods  of  financing 
and  selling.     (See  Chapters  XXVII  and  XXVIII.) 

The  Direct-Selling  Manufacturer 

The  direct-selling  manufacturer,  who  has  either  given 
up  the  jobber  or  who  enters  an  industry  with  a  marketing 
plan  which  goes  direct  to  the  retailer,  finds  on  his  books  a 
great  number  of  small  accounts  in  place  of  a  few  large 
ones.    Such  alterations  of  organization  and  of  trade  channels 


22 


NEW   COLLECTION   METHODS 


thrust  fresh  problems  upon  a  management  which  has  been 
used  to  handling  a  few  accounts  from  firms  personally 
known  to  the   seller. 

For  example,  the  credit  department  of  one  well-known 
manufacturer  at  the  beginning  of  a  certain  year  handled 
about  sixty  accounts  a  month;  in  July  of  that  year  it 
handled  three  hundred.  This  was  due  in  part  to  a  vigorous 
new  sales  policy,  and  in  part  to  giving  up  jobbers  in  a 
certain  section  of  the  country  where  formerly  sales  had 
been  made,  sometimes  to  jobbers,  sometimes  direct  to 
retailers.  The  immediate  result  was  to  swamp  the  credit 
department  until  a  satisfactory  system  was  installed  to  care 
for  the  increased  volume.  The  labor  of  caring  for  this  flood 
of  new  accounts  was  part  of  the  price — estimated  in 
advance — paid  by  the  manufacturer  for  his  altered  trade 
channels.  If  he  eliminates  the  jobber  in  his  other  territories 
his  credit  manager  will  face  new  problems  of  greatly  in- 
creased complexity  and  size. 


CHAPTER    IV 
THE  PRINCIPLE  OF  RESALE 

Collection  Is  Resale 

For  the  man  who  wants  collections  that  get  the  money, 
there  is  one  great  principle  that  opens  the  way  to  success. 

It  is,  "Collection  is  resale." 

This  is  a  more  suggestive  statement  of  the  well-known 
principle,  "Get  the  money  but  keep  the  customer.''  How  is 
the  collector  to  keep  the  customer?  By  "reselling"  him;  that 
is,  by  reawakening,  to  some  extent  at  least,  the  state  of  mind 
under  which  the  sale  was  made. 

Sale  and  Resale 

When  a  sale  is  made,  the  salesman  has  succeeded  in  awak- 
ening in  the  customer's  mind  a  desire  for  the  article,  whether 
goods  or  service,  that  is  being  sold.  He  has  likewise  con- 
vinced the  customer  of  the  value  of  the  article  and  has  induced 
him  to  take  the  action  of  ordering  the  goods.  If  the  sale  is 
made  on  credit,  the  buyer  knows  well  that  the  time  will  come 
when  he  must  pay  for  his  purchase.  But  his  desire  for  the 
goods  is  great  enough  to  overcome  the  anticipated  unpleas- 
antness of  parting  with  his  money.  Probably  he  is  never 
so  thoroughly  "sold"  as  during  the  first  few  minutes  after  he 
has  closed  the  deal,  when  he  has  all  the  joys  of  imagination. 
By  the  time  the  goods  arrive,  he  may  be  in  a  mood  to  ship 
them  back,  and  after  they  have  been  on  his  shelf  or  in  use 
for  some  time,  or  even  after  he  has  sold  them  and  received 
payment  for  them,  he  may  be  considerably  less  enthusiastic 
than  he  was  at  the  moment  of  ordering. 

23 


24 


NEW   COLLECTION   METHODS 


When  he  ordered,  moreover,  he  understood  thoroughly — 
or  should  have  been  made  to  understand— the  credit  obHga- 
tion,  and  he  appreciated  or  should  have  appreciated  the  un- 
pleasant consequences  that  would  follow  his  failure  to  make 
payment.  But  this  impression  also  may  fade  from  his  mind 
as  time  goes  on. 

One  thing  is  certain — at  the  time  of  sale  the  customer's 
state  of  mind  was  a  pleasant  one.  He  wanted  the  goods ;  he 
applauded  and  approved  of  the  credit  arrangement  that  en- 
abled him  to  get  them ;  he  was  willing  to  pay.  Certainly  he 
did  not  originally  buy  the  goods  and  assume  credit  responsi- 
bilities because  he  was  afraid  of  what  would  happen  if  he  did 
not,  but  because  he  was  thoroughly  pleased  with  the  prospects. 
Accordingly,  if  this  imaginary  customer  pays  promptly  on 
the  due  date,  it  is  probably  because  he  remembers  his  satis- 
faction with  the  goods,  and  because  furthermore,  he  knows 
it  is  to  his  own  advantage  to  live  up  to  his  credit  obligations. 
Likewise,  if  he  does  not  pay  promptly,  it  is  probably  because 
these  impressions  have  faded  from  his  mind.  The  goods  were 
sold,  but  they  did  not  "stay  sold,"  and  the  buyer  must  be 
"resold." 


Reawakening  a  State  of  Mind 

The  first  state  of  mind  cannot  be  fully  reawakened;  we 
can  hardly  hope  to  get  a  man  to  pay  his  bills  with  as  much 
enjoyment  as  he  originally  felt  when  buying  the  goods.  To 
overbalance  his  natural  reluctance  to  part  with  his  money, 
the  collector  must  throw  into  the  scale  such  factors  as  the 
power  of  habit — it  is  habitual  for  a  man  to  pay  his  bills 
whether  he  likes  it  or  not ;  the  moral  dislike  of  wrong-doing 
— a  man  who  does  not  pay  his  bills  is  condemned  by  his  own 
conscience ;  and  the  fear  of  force — a  man  who  does  not  pay 
his  bills  is  subject  to  law,  which  will  compel  him  to  give  up 
the  money. 


THE    PRINCIPLE   OF   RESALE 


55 


But  the  power  of  habit  is  likely  to  be  upset  by  cross-cur- 
rents of  opposing  desires  when  the  customer  wants  the  moncv 
for  his  own  use.  And  while  the  disUke  of  wrong-doing  and 
the  fear  of  force  hover  always  in  the  background  of  his  mind, 
he  may  resist  payment  a  long  time  before  they  operate 
strongly.  Long  terms  and  easy-going  methods  have  been 
customary  in  America,  so  that  the  slow-pay  man  is  apt  to 
consider  himself  no  worse  than  his  neighbor,  and  to  turn  a 
deaf  ear  to  the  credit  department's  remonstrances  until  it  takes 
strong  measures. 

The  Value  of  Resale 

Resale  is  the  principle  which  reduces  the  creditor's  bills 
receivable,  gives  him  more  capital  to  carry  on  an  efficient 
business,  increases  his  profits  by  decreasing  his  expenses,  cuts 
down  the  credit  period,  turns  delinquents  into  discounters,  and 
establishes  a  clientele  of  financially  sound  customers.  Resale 
builds  a  hearty  good-will,  establishes  for  the  seller  an  identity 
of  interest  with  his  customers,  and  develops  them  into  increas- 
ingly valuable  outlets  for  his  merchandise.  Resale  makes 
for  co-operation,  which  is  the  vital  principle  of  contemporary 

business. 

Resale  throws  open  to  the  collector  all  the  storehouse  of 
appeal  and  suggestion  that  has  added  such  strength  to  modern 
merchandising  when  employed  by  the  sales  and  advertising 
departments.  It  enlarges  his  study  of  the  debtor's  psychology, 
and  increases  his  ability  to  get  results  in  dealing  with  him. 
It  invites  him  to  employ  more  varied  and  accurately  chosen 
weapons  in  his  assault  upon  delinquency,  and  promises  him 
as  reward  an  easier  victory. 

The  Coming  Principle 

Although  the  principle  of  resale  has  not  hitherto  been 
fully  recognized  or  stated,  it  has  been  applied  by  forward- 


26 


NEW   COLLECTION    METHODS 


i 


looking  merchandisers  to  the  work  of  credit  and  collection, 
until  it  will  soon  revolutionize  that  portion  of  business  pro- 
cedure. In  a  hundred  ways,  the  stress  of  war  and  after-the- 
war  conditions  will  throw  it  into  prominence. 

Any  house  which  should  fail  to  employ  modern  methods 
of  salesmanship  and  sales  organization  in  the  solution  of  its 
merchandising  problems  would  be  marked  for  a  position  of 
decreasing  strength,  if  not  for  actual  decay.  Likewise  the 
house  which  fails  to  understand  and  use  the  principle  of  re- 
sale, is  foregoing  a  measureless  advantage.  The  house  which 
wishes  an  advantage  over  its  competitors  will  seize  and  em- 
ploy the  new  principle,  and  will  deserve  the  success  it  earns. 

Are  Collections  a  Disease? 

It  must  not  be  forgotten  that  collections  are  a  part  of 
marketing.  Sometimes  men  make  the  mistake  of  thinking 
that  the  work  of  collections  is  made  necessary  by  a  disease 
of  business,  that  the  collection  department  is  a  sort  of  pest- 
house,  which  a  healthy  society  would  no  longer  require.  They 
seem  to  believe  that  the  collector  deals  exclusively  with  im- 
morality, that  he  should  show  it  severity,  and  no  mercy ;  that 
he  is  a  combination  of  shyster  lawyer,  hell-fire  preacher,  and 
executioner. 

A  Constructive  Undertaking 

No  thinking  man  holds  this  view  consciously,  but  some 
trace  of  it  is  seen  in  the  talk  about  "getting  onto  a  cash  basis," 
and  "eliminating  the  evil  and  expense  of  collections."  The 
truth  is  that  the  credit  system  is  the  distinguishing  mark  of 
our  present  era  of  civilization,  and  that  to  go  to  a  cash  basis 
would  set  back  the  clock  by  centuries.  The  work  of  collec- 
tions is  not  to  eliminate  a  vice,  but  perpetually  to  aid  in  the 
great  constructive  enterprise  of  distributing  goods.  Infinite 
resource  and  planning  must  be  devoted  both  to  getting  goods 


m 


THE   PRINCIPLE   OF   RESALE 


27 


into  the  hands  of  consumers,  and  to  securing  payment  for 
those  goods.  The  changing  customs  of  business,  the  con- 
stant shifting  of  markets  and  populations  and  buying  habits, 
the  elasticity  of  human  nature  itself,  will  forever  tax  the  wis- 
dom and  invention  of  merchandisers,  both  to  rell  their  goods 
under  new  conditions,  and  to  collect  their  money  under  the 
same  new  conditions.  Business  houses,  like  men,  grow  old 
and  die ;  and  the  sign  of  their  old  age  is  their  inability  to 
adapt  themselves  to  changed  conditions.  Adaptation  is  writ- 
ten into  the  law  of  growth.  The  constructive  work  of  col- 
lecting the  money  will  never  be  over,  so  long  as  there  arc 
goods  to  sell  and  money  to  be  paid  for  them. 

When  man  has  become  omniscient  and  perceives  exactly 
where  his  duty  and  permanent  advantage  lie ;  when  accidents 
no  longer  force  men  into  the  whirlpool  of  ruin  where  their 
sense  of  righteousness  is  lost  and  they  grasp  at  every  straw ; 
when  poverty  and  disease  are  gone,  and  war  and  selfishness 
have  vanished,  and  all  men  think  alike ;  when  every  buyer  is 
born  with  a  perfect  knowledge  of  business  and  no  longer  needs 
education  by  those  wiser  than  he— then  the  collection  depart- 
ment may  lay  aside  its  eternal  warfare  on  ignorance,  care- 
lessness, and  opposing  views  of  self-interest,  and  enjoy  a  well- 
earned  repose.  But  for  the  next  few  years,  at  all  events,  the 
collection  manager  is  not  likely  to  work  himself  out  of  a  job. 

Driving  Back  the  Frontier 

It  is  probably  true  that  the  great  task  of  merchandising 
in  America  is  and  has  been  to  drive  back  the  frontier,  to 
raise  the  standard  of  living  and  the  scale  of  civilization.  It 
is  just  as  true  that  the  work  of  collecting  money  when  it  is 
due,  of  establishing  sounder  terms  and  a  greater  sense  of  re- 
sponsibility, had  its  share  in  wresting  us  from  the  frontier 
conditions  of  finance,  and  in  increasing  our  national  pros- 
perity and  our  ability  to  gratify  our  wants. 


28 


NEW   COLLECTION    METHODS 


THE   PRINCIPLE   OF  RESALE 


29 


I 


I 


One  Unit  in  an  Organism 

As  has  been  said  already,  tlie  collector's  work  is  intimately 
related  to  all  the  other  departmenis  of  the  house,  has  its  effect 
on  them,  and  is  affected  by  them.  If  sales  are  forced  and 
improper  promises  are  given,  collection  is  difficult.  If  a  new 
and  daring  plan  of  sale  is  adopted,  side  by  side  with  it  must 
be  planned  a  collection  method  equal  to  the  situation.  If  col- 
lection is  not  intelligently  conducted.,  the  next  sales  will  be 
harder  to  make.  If  the  claim  department  makes  its  adjust- 
ments bunglingly,  collections  are  held  up  and  rendered  inef- 
fective. If  the  goods  are  not  what  they  should  be,  if  the 
production  department  lias  iaile^d,  the  collections  will  be  slovr 
or  impossible. 

Familiar  Illustrations  of  Resale 

One  application  of  the  principle  of  resale  in  collections 
is  found  in  the  method  of  collecting  petty  accounts  as  prac- 
ticed by  some  houses  who  remind  the  customer,  "We  know 
you  were  satisfied  with  these  goods,"  as  a  reason  why  he 
should  pay  for  them.  Other  manageis  object  to  this  on  prin- 
ciple, pointing  out  that  it  is  bad  practice  to  carry  over  sales 
arguments  into  the  credit  period.  Where  the  sale  has  been 
made,  they  say,  and  the  customer  has  accepted  the  goods,  it 
is  bad  practice  to  reopen  the  question.  Every  collection  letter 
should  state  or  imply  directly  that  payment  must  be  made; 
that  there  is  no  room  for  argument. 

There  can  be  no  doubt  that  this  principle  is  sound,  but 
still  it  is  possible  to  use  resale  as  one  element  in  collec- 
tions. Provided  it  is  assumed  unhesitatingly  that  the  goods 
were  entirely  satisfactory,  to  refer  in  early  collection  letters 
to  the  good  quality  of  the  merchandise,  makes  the  debtor  feci 
rather  ashamed  of  himself  for  not  paying  promptly  for  value 
received.  The  strength  of  the  cireditor*s  position  is  not  weak- 
ened any  more  than  by  the  use  of  other  courteous  means  of 


requesting  payment.  Resale  of  the  goods  under  these  condi- 
tions is  not  a  weak  defense,  but  an  attack  on  the  debtor's 
resistance. 

"The  Money  Is  Due  and  Must  Be  Paid" 

The  credit  manager  of  one  of  the  largest  corporations  in 
the  United  States  who  had  formerly  been  credit  manager  of 
one  of  the  companies  now  controlled  by  the  corporation  said 
in  reference  to  this  method,  "We  never  use  any  argument  in 
collecting  other  than  the  one  that  the  money  is  due  and  must 
be  paid."  In  further  conversation,  however,  he  went  on  to 
show  how  every  letter  was  written  as  a  result  of  a  close 
study  and  knowledge  of  the  individual  customer's  likes  and 
dislikes,  of  his  business  location  and  opportunity.  He  told 
also  how  his  letters  frequently  included  personal  remarks  on 
the  customer's  business  or  private  affairs.  "We  like  to  show 
our  customers  that  we  know  them  as  friends,  and  that  we 
are  as  much  interested  in  them  when  collecting  money  as  when 
selling  the  goods."  In  other  words,  the  resale  attitude  domi- 
nated the  collection  methods  of  this  corporation.  Although 
their  methods  were  based  on  the  fact  of  the  customer's  obli- 
gations, and  never  lost  sight  of  the  principle,  "the  money  is 
due  and  must  be  paid,"  yet  the  human  element — the  resale 
point  of  view — was  kept  foremost. 

Resale  in  Instalment  Collections 

The  importance  of  the  principle  of  resale  in  instalment 
collections  is  hard  to  overestimate.  "Our  whole  problem," 
says  a  manager  of  a  company  whose  name  is  known  to  every 
business  man,  "lies  in  painting  the  picture  so  strongly  that  it 
will  remain  in  the  mind  of  the  buyer  and  get  him  to  continue. 
Needless  to  say  this  cannot  all  be  done  at  one  time,  but  must 
be  carried  on  through  the  period  of  instalment  payment.  The 
purchaser  must  be  sold  and  resold.    Delinquency  is  a  state  of 


30 


NEW   COLLECTION   METHODS 


ji»  - 


mind.  The  typical  delinquent  gets  into  that  state  because  he 
has  not  imagination  enough  to  see  the  consequences  of  his 
delinquency.  Personally,  I  believe  that  this  statement  applies 
to  business  of  every  kind,  whether  the  consequences  of  the 
buyer's  lack  of  imagination  are  loss  of  credit,  loss  of  busi- 
ness, loss  of  self -ad  vantage,  or  something  else.  In  every  case, 
in  order  to  sell  the  goods  and  secure  payment,  the  customer 
must  be  sold  and  resold." 

The  question  of  instalment  collections  is  treated  fully  in 
Chapters  XXXIII-XXXIV. 

Are  You  Reselling  Goods  or  Credit? 

While  this  question  is  discussed  more  fully  elsewhere  (see 
Chapter  VII,  ^'Selling  and  Reselling  Credit"),  it  is  proper 
to  point  out  here  that  resale  may  be  applied  to  credit  as  well 
as  to  goods.  It  is  lack  of  imagination,  according  to  the  man- 
ager just  quoted,  that  prevents  some  of  his  customers  from 
keeping  on  with  their  instalment  payments.  To  get  them  to 
continue  he  must  get  them  to  realize  the  advantages  of  the 
goods  he  is  selling.  Is  it  not  equally  true  that  lack  of  imagi- 
nation and,  still  more,  lack  of  information  pertaining  to  the 
nature  and  value  of  the  credit  privilege,  are  the  cause  of  most 
delinquency?    The  credit  manager  must  sell  and  resell  credit. 


!\ 


CHAPTER    V 


USING   THE    PRINCIPLE   OF   RESALE 


When  to  Use  Resale 

At  what  stage  in  the  collection  procedure  can  resale  be 
most  effectively  used?  While  it  is  effective  at  every  stage, 
right  up  to  the  time  when  the  account  is  turned  over  to  the 
attorney  with  instructions  to  begin  suit,  nevertheless  the 
early  stages  of  delinquency  afford  the  best  field  for  its  use. 
At  this  stage  the  purchaser's  realization  of  the  benefits 
received  from  his  purchase  are  keenest,  and  appeals  based 
on  that  realization  will  have  most  effect.  Second,  he  has 
not  yet  fully  realized  that  his  account  is  overdue  and  that 
he  is  delinquent.  Payment  is  still  the  natural  action  for 
him  to  take. 

The  Critical  Moment 

There  is  in  the  history  of  every  overdue  account  a 
critical  stage  when  its  future  course  hangs  on  very  slight 
circumstances.  A  little  thing  may  secure  payment  or  may 
postpone  it.  The  delinquent  intends  to  pay,  and  has  not  yet 
fully  realized  that  the  account  is  overdue.  If  the  creditor 
could  know  precisely  when  this  stage  occurred  and  could  take 
just  the  right  action,  he  could  prevent  an  enormous  amount  of 
delinquency.  In  the  case  of  most  accounts  and  especially  with 
customers  who  are  not  habitually  and  deliberately  slow  pay, 
this  stage  is  reached  just  after  payment  is  due.  The  first 
sign  of  slowness  in  payment  is  the  best  time  for  resale. 

An  "Inspirational"  Folder  Used  in  Resale 

The  Alexander  Hamilton  Institute  makes  notable  use  of 

31 


i 


i 


i^■l 


32 


NEW   COLLECTION   METHODS 


1 


the  principle  just  stated  by  employing  a  little  "inspirational" 
folder  as  soon  as  the  payment  is  overdue.  This  contains 
an  interesting  news  item  showing  the  value  of  the  Institute 
course  to  its  members.  Fresh  material  for  these  folders  is 
continually  collected  and  kept  on  file.  A  paragraph  of 
material  similar  in  character,  is  used  in  one  of  the  earliest 
collection  letters. 

Although  the  Harley-Davidson  Motor  Cycle  Company 
secures  payment  in  full  from  its  dealers  before  the  machines 
leave  the  company's  hands,  yet  the  dealer  himself  receives 
but  50  per  cent  of  the  purchase  price  down  from  the 
"rider,"  as  the  customer  is  called,  and  the  balance  in  instal- 
ments. The  company  protects  its  dealers  by  reselling  every 
rider  for  the  period  of  a  year,  sending  him  news  items, 
pictures,  etc.,  about  Harley-Davidsons  that  are  giving  service 
all  over  the  world.  This  follow-up  prevents  unreasonable 
complaints  by  maintaining  good-will,  and  incidentally  is  the 
means  of  selling  other  products  handled  by  the  company, 
but  it  also  has  a  marked  effect  in  keeping  the  instalments 
regular  and  prompt. 

Doubleday,  Page  and  Company  use  resale  letters  at  the 
time  their  books  are  shipped,  examples  of  which  follow: 

Dear  Sir: 

Our  records  show  that  the  Farmers'  Cyclopedia  was  forwarded 
to  you  as  per  your  instructions  a  few  days  ago.     Has  it  reached 

you? 

In  looking  through  the  pages,  you  will  undoubtedly  find  that 
the  facts  given  are  the  result  of  much  experience  on  the  part  of 
the  editors  who  contributed  to  making  this  great  series  of  seven 
books.  One  of  the  best  indorsements  we  have  and  which  we  be- 
lieve recommends  itself  to  you,  is  the  fact  that  the  Cyclopedia  has 
been  adopted  by  the  foremost  Agricultural  School  in  the  world,  as 
the  basis  for  its  courses  in  the  various  branches  of  farm  work. 

The  enclosed  bill  is  simply  sent  you  as  a  reminder  that  there 
are  two  methods  of  payment.  If  you  choose  to  pay  cash,  you  may 
have  the  entire  set  for  $27.98.  On  the  easier  plan  you  can  pay  at 
the  rate  of  $3.00  oer  month. 


fii 


USING   THE   PRINCIPLE   OF   RESALE 


33 


We  believe  that  the  use  and  guidance  of  the  Farmers'  Cyclo- 
pedia will  bring  better  results,  and  trust  that  through  your  satis- 
faction with  it,  we  can  supply  you  whenever  you  are  again  in  need 

of  books. 

Yours  very  truly, 

Doubleday,  Page  &  Company 


Dear  Sir:  . 

Have  you  noticed  what  a  great  help  the  Coburn  Manual  is 
toward  getting  the  best  out  of  the  seven  volume  set  of  the  Farmers' 
Cyclopedia?  This  helpful  Manual  prepared  by  a  man  who  has 
had  twenty  years  of  experience  in  scientific  agriculture,  has  aided 
many.    We  know  that  you,  too,  will  get  lots  of  encouragement  and 

help  from  it. 

Are  you  aware  that  we  maintain  a  Service  Bureau  for  pur- 
chasers of  the  Farmers'  Cyclopedia?  This  Bureau  is  in  charge 
of  men  who  thoroughly  understand  and  appreciate  all  the  difficulties 
and  problems  that  arise  in  the  agriculturists'  work.  If  you  have 
any  problems  on  which  you  would  like  to  receive  advice,  send  them 
along  to  these  men.  The  service  is  absolutely  free,  and  is  intended 
only  to  give  you  all  the  help  we  possibly  can. 

We  receive  many  words  of  praise  regarding  the  Farmers' 
Cyclopedia  and  Manual,  but  chief  among  our  wishes  is  the  desire 
that  everyone  be  well  pleased  with  the  purchase.  We  trust  that 
we  can  number  you  among  those  who  have  written  us  regarding 

their  satisfaction. 

Yours  very  truly, 

Doubleday,  Page  &  Company 

Collect  While  the  Mental  Image  Is  Fresh 

After  goods  have  been  used  or  possessed  for  some  time, 
the  mental  image  of  benefits  received  from  them  has  faded, 
or  is  overlaid  by  fresh  anticipations  of  benefits  from  other 
purchases.  The  cigars  I  have  smoked  are  not  so  pleasant 
as  those  I  am  going  to  smoke.  The  goods  unpacked  and 
lying  on  my  shelves  are  less  attractive  to  me  than  when  I 
first  unpacked  them  and  thought  of  how  much  they  were 
going  to  bring. 

Are  you  selling  labor?  Then  the  time  to  collect  is  while 
the  purchaser  has  a  lively  mental  image  of  the  carpenters 


ll 


34 


NEW   COLLECTION   METHODS 


with  their  saws  and  hammers,  or  of  the  plasterers  whom 
he  waited  for  and  who  kept  his  house  in  a  turmoil,  or  of 
the  painters  and  their  ladders  and  brushes  and  the  bridge  of 
boards  across  the  front  porch.  These  things  impress  the 
purchaser  with  the  amount  of  time  spent  on  the  job,  and  he 
knows  the  time  is  worth  money. 

Later,  when  the  floor  is  covered  with  rugs  and  the  walls 
with  pictures,  and  the  house  has  become  a  place  to  live  in, 
the  purchaser  of  the  labor  has  lost  in  part  the  mental  image 
of  the  things  he  bought,  but  he  never  loses  the  mental  image 
of  the  pleasure  of  keeping  his  money  as  long  as  he  can. 

Still  later,  too,  the  plaster  may  crack  a  little  and  the 
paint  may  peel  or  blister.  When  time  has  given  a  chance 
for  some  dissatisfaction  to  arise  in  the  purchaser's  mind,  he 
feels  *' justified"  in  withholding  payment. 

Many  up-to-date  sellers  of  labor  and  service  obtain  from 
the  purchaser  a  signed  statement  that  the  job  was  completed 
satisfactorily.  This  varies  from  a  simple  slip  to  be  signed, 
like  a  receipt  for  the  delivery  of  coal,  to  a  form  showing 
the  number  of  hours  spent  each  day  and  the  rate  per  hour. 
A  manufacturer  of  engines,  for  example,  uses  the  latter 
kind  of  receipt  for  installation  and  repairs.  Two  years  ago, 
he  changed  the  wording  of  the  paragraph  just  above  the 
customer's  signature,  taking  out  all  technical  language  and 
making  it  the  simplest  possible  statement  that  the  engine 
was  in  good  running  order  and  that  the  customer  authorized 
the  company  to  bill  him  both  for  time  expended  and 
for  materials  expended  as  shown  in  the  statement. 

Since  changing  his  wording  he  has  not  had  one  disputed 
charge  and  his  collections  have  been  far  easier.  In  every 
case,  he  resells  the  service  rendered,  and  also  expresses  the 
company's  willingness  to  give  further  service.  He  secures 
payment,  moreover,  as  soon  as  possible  after  the  job  is 
completed. 


i 


USING  THE   PRINCIPLE  OF  RESALE 


35 


Does  Resale  Abandon  the  Creditor's  Rights? 

But  does  the  adoption  of  the  principle  of  resale  imply 
giving  up  the  principle  that  the  money  is  the  creditor's  by 
right,  and  that  he  has  the  right  to  use  force  to  secure  it? 
Surely  the  fundamental  fact  is  that  the  money  is  his,  and 
not  the  debtor's,  and  that  if  payment  is  not  made,  legal 
redress  will  be  sought.  This  is  true,  one  may  argue,  what- 
ever face  may  be  put  on  it,  and  whatever  fine  words  are 
used  about  it. 

Forcible  Methods  Are  Expensive 

Yes,  it  is  true,  the  good  credit  manager  will  reply,  the 
argument  is  fundamental.  But  it  is  also  true  that  going  to 
law  is  not  always  the  best  way  to  get  one's  rights.  If  force 
is  the  only  argument,  the  delinquent  will  delay  payment 
until  force  is  about  to  be  used,  with  the  result  of  a  long 
credit  period,  and  a  large  outstanding  indebtedness,  both  of 
which  are  expensive.  If  force  is  the  only  argument,  the 
customer  will  not  be  so  likely  to  buy  again,  with  a  resulting 
large  turnover  of  customers,  and  the  heavy  cost  involved 
in  soliciting  and  selling  a  large  percentage  of  new  trade 
each  year.  If  force  is  the  only  argument,  the  volume  of 
sale  to  each  customer  will  be  less,  because  the  credit  manager 
will  be  thinking  of  caution  and  safety  rather  than  of  selling 
the  goods. 

Force  is  the  last,  but  not  the  only  argument.  It  is  like 
the  appeal  to  arms,  "ultima  ratio  regum,"  the  final  argument 
of  kings,  the  last  resort  when  diplomacy  fails.  If  a  credit 
manager  can  be  found  who  in  actual  practice  restricts  his 
arguments  to  force  and  the  threat  of  force,  and  if  a  ma- 
jority of  his  customers,  notwithstanding  this,  are  paying 
without  waiting  to  be  forced,  then  other  arguments  are 
present  in  their  minds  which  urge  them  to  pay.  If  the 
credit   manager   can   discover   what   those   arguments   are, 


II 


i 


III 


„,: 


f 

V 
1  l\ 


36 


NEW   COLLECTION   METHODS 


surely  he  will  do  well  to  employ  them  openly  or  by  sugges- 
tion with  his  slow-pay  or  delinquent  customers,  so  that  at 
least  he  gives  his  customers  active  co-operation  instead  of 
making  them  do  all  the  work  of  arguing  themselves  into 
payment. 

Why  Do  Customers  Pay? 

Every  credit  manager  knows  the  reasons  that  induce  cus- 
tomers to  pay,  and  to  greater  or  less  extent  avails  himself 
of  their  aid  in  making  collections.  First  come  those  reasons 
which  rise  instinctively  before  the  customer's  mind,  without 
requiring  much  thought. 

1.  He  pays  because  he  has  the  habit  of  paying,  because 

he  is  used  to  making  checks  out  at  certain  times, 
because  he  has  a  system — and  the  credit  manager 
of  the  creditor  house  has  a  system — of  bringing 
the  subject  to  his  attention. 

2.  He  pays  because  he  has  pride  in  meeting  his  obliga- 

tions and  conducting  an  efficient  business. 

3.  He  pays  because  he  has  good-will  for  the  house;  he 

thinks,  "I  like  to  do  business  with  these  people, 
because  they  treat  me  right,  and  so  Fll  treat  them 
right." 

4.  He  pays  because  he  knows  he  ought  to  pay,  because 

it  is  a  moral  obligation. 

5.  He  pays  because  he  wants  to  avoid  annoyance,  and 

he  knows  he  will  be  "pestered"  with  letters  or 
collectors  if  he  is  slow. 

Keeping  a  Good  Reputation 

If  he  thinks  a  little  further,  he  pays  to  keep  a  good 
reputation  and  to  protect  his  credit  rating.  He  knows  that 
the  privilege  of  doing  a  credit  business  is  a  matter  of  life 
and  death  to  him,  because  he  is  accustomed  to  pay  for  his 


USING   THE   PRINCIPLE   OF  RESALE 


37 


invoices  in  large  part  with  the  money  received  from  the  sale 
of  the  goods,  and  the  30  or  60  days*  terms  enable  him  to 
provide  the  cash  with  which  to  settle  his  bills.  If  he  were 
driven  to  a  cash  basis,  it  would  not  be  possible  for  him  to 
buy  enough  goods  to  satisfy  his  customers;  he  would  have 
to  shrink  his  volume  of  sales,  sacrifice  his  prestige  and  good- 
will, and  reduce  himself  to  a  fourth-rate  position.  To  suffer 
this  from  all  his  creditors  would  be  to  receive  a  death-blow. 
To  suffer  it  from  one  of  them  would  mean  some  proportion 
of  disaster.  Even  to  have  a  shipment  temporarily  held  up 
because  the  credit  man  refused  to  check  further  orders  for 
shipment  until  his  indebtedness  was  reduced,  would  probably 
destroy  the  profit  on  those  goods  by  keeping  them  out  of 
his  hands  until  the  best  market  time  was  past.  If  he  has  a 
good  reputation,  moreover,  he  can  increase  the  size  of  his 
orders  without  too  much  question  from  the  credit  man,  and 
this  may  mean  doing  a  big  business  at  a  strategic  moment. 

Getting  the  Right  Goods 

Besides  securing  the  advantages  of  credit-buying,  a  good 
reputation  allows  him  to  deal  in  the  goods  he  prefers  to 
handle.  No  matter  how  "independent"  he  is,  he  has  his 
preferences  about  goods,  and  so  have  his  customers.  If  he 
gets  into  trouble  with  a  good  house,  and  tries  to  switch  his 
orders  to  another  equally  good,  he  is  likely  to  suffer  an 
embarrassing  investigation,  thanks  to  the  co-operation  that 
exists  among  good  houses.  Perhaps  he  will  be  driven  to 
take  up  a  line  of  merchandise  from  a  house  that  is  less 
scrupulous  about  credit — and  also  less  scrupulous  about  the 
quality  of  its  Hne. 

Credit,  Goods,  and  Service 

In  general,  also,  he  wants  to  stand  well  with  a  house  so 
as  to  get  service,  not  only  from  its  credit  department  but 


k 


38 


NEW   COLLECTION   METHODS 


USING  THE  PRINCIPLE  OF  RESALE 


39 


also  from  its  sales  and  other  departments.  He  knows  that 
whatever  favors  it  has  to  bestow  will  be  granted  most 
willingly  to  its  "good  customers" ;  and  the  same  desire  holds 
good  as  to  his  relations  with  other  houses. 

Prompt  payment  and  a  good  reputation,  then,  enable  him 
to  secure  credit,  goods,  and  service  from  the  house  which 
is  his  creditor  at  the  moment,  and  from  other  houses. 

Paying  to  Secure  the  Discount 

The  wide-awake,  up-to-date  merchant,  who  can  get  the 
necessary  capital,  pays  because  he  wants  the  discount.  The 
'^ery  substantial  bonus  given  for  prompt  payment  is  an 
obvious  prize  dangled  before  his  eyes,  and  he  wants  to 
grasp  it.  He  could  use  that  extra  2  to  6  per  cent  very 
handily,  and  if  it  amounts  to  an  extra  lo  to  12  per  cent  in 
the  course  of  a  year,  it  may  mean  all  the  difference  between 
making  a  profit,  with  interest  on  his  investment  and  pay- 
ment for  his  services,  or  working  without  salary  and  break- 
ing even.  The  extra  profit  through  taking  discounts  may 
save  him  from  steadily  digging  into  his  capital,  a  process 
which  brings  nearer  the  day  when  the  sheet  of  white  paper 
is  fastened  to  his  door — the  crepe  that  proclaims  the  death 
of  a  business. 

The  Value  of  the  Turnover 

And  the  merchant  who  is  a  thorough  student  of  business 
pays  because  he  wants  the  turnover.  He  buys  no  more  than 
he  can  sell,  and  he  watches  his  perpetual  inventory.  He 
hustles  his  capital  to  market  for  a  load  of  goods,  and  brings 
it  back,  stepping  on  the  accelerator  all  the  way.  He  works 
hard  to  unload  the  goods  and  free  the  capital  and  send  it 
back  for  another  load  as  quickly  as  he  can.  He  knows  that 
if  his  capital  makes  only  one  trip  a  year,  or  two  in  three 
years,  perhaps  he  will  not  keep  abreast  of  rising  costs;  while 


if  it  travels  four  or  five  times  a  year  and  brings  home  a 
profit  every  time,  those  four  or  fi\e  profits  in  place  of  one 
or  two  will  enable  him  to  buy  the  best  goods,  sell  at  a  price 
his  customers  will  like,  and  still  retain  a  larger  profit  for 
himself,  as  the  reward  of  his  superior  efficiency.  All  this 
program  of  a  rapid  turnover  is  blocked  if  his  payments  are 
slow,  because  there  is  a  limit  to  the  credit  manager's  willing- 
ness to  ship  subsequent  invoices  while  earlier  ones  are  still 
outstanding  on  the  books. 

In  the  last  resort,  the  customer  pays  because  he  must. 
But  that  is  a  long  tinae  off. 

The  Reasons  for  Payment — Summary 

To  summarize,  the  arguments  with  which  the  customer 
induces  himself  to  pay  are: 

1.  Habit,  reinforced  by  pride,  good-will,  the  sense  of 

fair  play,  and  a  feeling  of  moral  obligation. 

2.  The  desire  to  avoid  trouble. 

3.  The  desire  for  a  good  reputation,  which  indirectly 

means  a  credit  business,  the  privilege  of  handling 
the  right  line  of  goods,  and  service  from  all  the 
departments  of  this  house  and  of  other  houses. 

4.  The  desire  for  the  discount,  which  spells  additional 

profit,  and  which  may  be  his  only  salvation  in  the 
face  of  rising  costs. 

5.  The  desire  for  an  increased  turnover,  as  a  means 

of  doing  a  prosperous  and  growing  and  really 
successful  business. 

It  is  the  opportunity  of  the  credit  manager  to  set  these 
arguments  to  work  on  behalf  of  his  house.  Some  of  them 
mean  payment  "some  time" — "in  the  long  run."  Some  of 
them  mean  payment  quickly.  He  can  keep  these  arguments 
vividly    before    the    customer's    mind;    he    can    "sell"    the 


40 


NEW   COLLECTION   METHODS 


advantages  of  credit  and  prompt  payment,  and  when  collect- 
ing he  can  "resell"  them  by  a  suggestive  phrase  or  occasion- 
ally by  careful  explanation  and  urging. 

The  appeal  to  force,  it  is  true,  always  stands  behind  and 
supports  these  other  arguments,  but  it  is  not  close  to  the 
customer's  mind,  and  it  produces  its  effects  slowly.  Other 
arguments  and  appeals  can  be  used  long  before  the  appeal 
to  force  would  take  effect. 


Enlarging  Trade  Outlets 

The  desire  not  only  to  "keep  the  customer,"  but  to 
develop  him  into  an  ever  enlarging  sales  outlet  for  the  com- 
pany, is  the  motive  from  which  spring  all  resale  policies. 
As  the  logical  result  of  this  point  of  view,  some  houses  have 
established  well-developed  service  or  efficiency  bureaus  co- 
operating with  both  credit  and  sales  departments  and  em- 
ploying field  experts  who  can  go  into  a  customer's  house, 
show  him  just  how  to  increase  his  sales,  reduce  his  expense, 
finance  his  expense  properly,  and  get  on  a  paying  basis — 
paying  the  customer  a  profit  for  his  business  and  paying  the 
creditor  promptly  for  his  invoices.  This  is  taken  up  in 
Chapters  XXVII  and  XXVIII. 

Are  Resale  Policies  a  Needless  Expense? 

Does  a  painstaking  care  for  the  interest  of  the  customer 
shown  in  all  the  operations  of  the  credit  and  collection 
department  really  pay  dividends?  Isn't  it  simpler  and  less 
expensive  to  send  out  a  couple  of  statements,  a  good  sharp 
letter  followed  by  draft,  and  then  to  turn  the  whole  thing 
over  to  a  collection  expert  Or^itside  of  the  house,  and  wash 
one's  hands  of  it?  This  routine  can  be  handled  by  the  book- 
keeper at  small  cost,  while  the  credit  manager  can  give  all 
his  attention  to  keeping  undesirable  citizens  from  getting 
any  of  the  goods  of  the  house. 


§ 


USING   THE   PRINCIPLE   OF  RESALE 


41 


The  Cheapest  Method 

The  experience  of  the  best  modern  houses  is  that  this 
"simple"  policy  is  the  most  expensive  one.  Satisfactory 
relations  v/ith  the  customer  pay  big  dividends,  and  the 
more  intelligent  the  human  interest  displayed  in  credit 
and  collection,  the  more  satisfactory  will  be  the  relations  with 
the  customer. 

No  one  who  has  been  privileged  to  look  into  the  private 
records  of  some  of  our  foremost  mercantile  houses  can  fail 
in  his  admiration  for  the  wise  constructive  attitude  there 
displayed.  And  no  one  can  talk  with  dealers  who  have 
benefited  by  this  genuine  friendliness,  and  who  in  return 
have  given  their  orders  year  after  year  to  the  house  from 
which  they  received  not  only  merchandise  and  credit  but 
service  as  well,  without  coming  to  believe  that  a  constructive 
attitude  and  resale  policies  in  the  credit  and  collection  de- 
partments are  responsible  for  no  small  measure  of  the 
success  enjoyed  by  these  houses. 


CHAPTER    VI 


THE  QUICK  "CLEAN-UP" 


Methods  for  the  "Short  Run" 

"I  am  interested  in  methods  that  will  succeed  in  the  long 
run,"  said  a  prominent  manufacturer.  "My  credit  and  col- 
lection department  must  be  reformed  and  put  on  a  broad  basis. 
I  shall  begin  right  away  with  every  new  customer  that  comes 
to  me.  But  what  shall  I  do  with  my  old  customers  who  have 
got  into  bad  habits  and  keep  me  short  of  capital  because  they 
are  so  far  overdue  ?  I  want  also  methods  to  be  used  with  my 
established  trade  right  away — methods  that  will  succeed  in 
the  long  run  will  be  all  right,  but  they  may  be  too  late  to  save 
me  from  embarrassment.  I  want  also  methods  that  will  suc- 
ceed in  the  short  run.'* 

This  manufacturer  was  truly  in  an  embarrassing  situa- 
tion. To  judge  by  the  standards  of  any  sound  collection  sys- 
tem, many  of  his  accounts  were  so  far  overdue  that  it  was 
time  to  adopt  stringent  methods.  But  while  this  would  get 
the  money,  it  would  almost  certainly  lose  many  of  the  cus- 
tomers. The  manufacturer  felt  that  his  own  lack  of  system 
in  the  past  had  been  partly  to  blame.  Instead  of  educating 
his  customers  into  good  methods,  "selling  them  credit,"  and 
"reselling"  them  in  the  early  stages  of  collection,  he  had  care- 
lessly "given  credit  away,"  used  a  lax  routine  that  kept  him 
apologizing  for  his  mistakes,  and  in  collection  had  used  life- 
less mechanical  letters  that  his  trade  easily  learned  to  disre- 
gard. 

Many  business  men,  both  wholesalers  and  retailers,  are 
in  the  same  situation;  they  would  like  to  reform,  but  how? 


THE   QUICK   "CLEAN-UP" 


43 


Moreover,  nobody  wants  to  confess  that  his  past  system 
has  been  defective,  for  it  will  increase  his  difficulties  in 
collecting  the  money  already  on  the  books. 

Getting  on  a  Sound  Basis — The  Solution 

The  only  way  to  solve  the  problem  is  to  make  a  clean 
break  with  the  past,  to  install  a  new  system,  and  then  to  tell 
one's  customers  about  it,  laying  all  possible  emphasis  on  the 
resale  element  in  the  situation.  Suppose  a  manufacturer 
finds  himself  confronted  with  the  unpleasant  option  of 
enforcing  his  terms  or  reducing  the  quality  of  his  line.  He 
can  send  out  a  letter  to  his  trade  whose  accounts  are  over- 
due, explaining  that  in  the  face  of  an  advancing  market  he 
can  either  raise  prices,  lower  the  quahty  of  his  goods,  or 
ask  frankly  for  their  hearty  co-operation  in  maintaining  his 
terms.  Perhaps  he  has  already  made  price  advances,  and 
can  point  out  that  he  wishes  to  avoid  others.  He  may  even 
find  himself  in  such  an  uncomfortable  position  that  it  will  be 
worth  while  to  offer  an  extra  discount  for  prompt  payment 
within  a  specified  time,  and  then  to  send  out  an  urgent 
follow-up  to  reach  the  customer  just  before  the  time  limit 
has  expired.  The  difficulty  with  this  method  is  that  if  it 
does  not  bring  in  the  money,  collections  will  be  all  the 
harder  from  these  customers  who  have  refused  to  respond 
to  the  powerful  motives  of  self-interest  and  money-saving. 

How  to  Handle  a  "Clean-Up" 

The  following  plan  has  been  found  most  successful  when 
a  "clean-up"  of  outstanding  accounts  has  become  necessary 
at  the  same  time  that  a  new  system  and  procedure  of  collec- 
tions is  to  be  installed. 

I.  If  the  emergency  is  not  very  great,  send  out  a  letter 
thanking  customers  for  their  patronage,  asking  payment  of 
their  balance,  and  explaining  the  measures  the  house  is  taking 


44 


NEW  COLLECTION   METHODS 


II 

fii 


for  their  advantage.  A  thorough  resale  of  the  goods  and  ser- 
vice of  the  house  can  be  included,  and  the  appeal  throughout 
can  be  made  on  the  basis  of  the  customer's  own  interests, 
without  suggestion  of  any  financial  stringency.  Such  a  letter 
win  succeed  in  most  instances  with  that  portion  of  the  trade 
which  is  really  able  to  pay;  because  it  carries  the  suggestion 
that  the  payment  is  being  invested  for  the  customer's  benefit. 

2.  If  the  situation  is  a  little  more  urgent,  add  to  the  fore- 
going an  appeal  to  good-will  and  co-operation,  and  say  that 
your  past  dealings  have  given  you  confidence  that  your  pres- 
ent measures  will  be  supported  in  the  same  spirit  of  good-will 
and  co-operation  that  have  always  existed  between  you. 

3.  If  the  situation  is  still  more  urgent,  speak  more  frankly 
of  the  problem  that  confronts  you  and  awaken  a  slight  fear 
that  on  his  next  order  the  customer  may  not  receive  the  same 
values  or  service  that  he  has  received  hitherto,  unless  he  be- 
comes more  prompt  in  his  payments  and  sends  in  the  amount 
already  overdue.  This  is  a  good  situation  in  which  to  resell 
the  value   of   credit. 

4.  But  if  the  credit  hold  on  the  customer  is  so  slight  that 
he  is  likely  to  take  his  orders  elsewhere,  after  receiving  this 
kind  of  letter,  and  if  the  creditor's  need  of  cash  is  so  urgent 
that  he  must  take  some  steps,  then  an  offer  of  a  cash  discount 
may  be  advisable.  A  retailer  may  find  it  more  to  his  advan- 
tage to  offer  some  article  out  of  his  stock  or  specially  pur- 
chased for  the  occasion  as  an  inducement  to  clean  up  an  old 
account. 

$.  One  of  the  very  best  methods  of  treating  this  situation 
is  to  ask  the  customer  to  take  a  trade  acceptance.  (See  Chap- 
ter XXVI,  "Trade  Acceptances.")  The  creditor  can  make 
this  fall  due  at  a  definite  time  in  the  future,  thus  allowing 
the  debtor  perhaps  a  month  more  in  which  to  meet  the  obliga- 
tion. He  may  offer  an  extra  per  cent  or  more  off  the  amount 
of  the  bill  if  the  trade  acceptance  is  used,  frankly  explaining 


THE  QUICK  "CLEAN-UF 


45 


that  he  can  afford  to  do  this.  This  method  is  businesslike  and 
does  not  necessitate  making  admissions  that  reflect  unpleas- 
antly on  the  creditor's  financial  condition,  because  the  trade 
acceptance  is  generally  regarded  as  an  emergency  measure 
but  serviceable  also  under  normal  conditions. 

Having  made  a  start  toward  a  "clean-up,"  special  letters 
should  be  written  to  meet  the  succeeding  situations.  One 
follow-up  should  be  prepared  to  be  sent  after  a  suitable  inter- 
val to  customers  who  are  not  taking  advantage  of  the  offer 
made  or  have  not  replied  at  all  to  the  first  letter.  A  strong 
appeal  to  the  sense  of  fair  play  is  the  best  measure  to  adopt 
here,  while  in  the  case  of  small  accounts  some  endeavor  to 
make  the  customer  feel  a  little  ashamed  of  himself  will  be 
serviceable  as  an  element  in  the  letter. 

Preventing  a  Relapse 

A  "clean-up"  of  this  kind  will  go  far  toward  relieving  the 
immediate  needs  of  the  creditor.  But  how  about  the  future? 
Will  not  the  former  lax  habits  of  his  customers  reassert  them- 
selves after  this  unusual  exertion?  The  answer  is  that  he 
must  keep  after  them  by  means  of  courteous,  educational 
measures,  referring  occasionally  to  the  points  that  his  "clean- 
up" letters  have  established. 

One  wholesaler  has  found  it  advisable  to  attach  to  all 
invoices  sent  to  customers  who  have  been  slow  pay,  a  printed 
sticker  containing  the  following  words :  "In  view  of  the  busi- 
ness conditions  now  prevailing  as  explained  in  our  corre- 
spondence, may  we  respectfully  ask  your  co-operation  in 
prompt  settlement  of  the  present  invoice.  This  firm  will  ac- 
cept your  action  as  evidence  of  your  good-will." 

Another  manufacturer  who  was  unwilling  to  appear  to 
be  dunning  his  customers  before  the  account  was  due,  placed 
a  similar  sticker  on  the  first  statement,  and  reports  not  only 
unusually  prompt  payment,  but  entire  absence  of  offense. 


46 


NEW   COLLECTION   METHODS 


THE   QUICK   "CLEAN-UP" 


47 


:;l 


To  those  not  responding  to  the  first  or  second  state- 
ment, a  rather  long  and  friendly  letter  could  be  sent,  asking 
them  to  take  a  note  or  a  trade  acceptance  in  view  of  the 
special  market  conditions  now  prevailing.  Since  the  whole 
collection  procedure  is  being  made  more  urgent,  the  letters, 
stickers,  etc.,  must  be  more  explanatory  and  must  carry  a 
tone  of  unmistakable  friendliness  so  that  the  customer  will 
understand  the  general  nature  of  the  step  taken,  and  will 
not  feel  that  this  unusual  urgency  is  directed  at  him  personally. 

Further  suggestions  for  collection  methods  that  will  suc- 
ceed "in  the  short  run,"  as  well  as  "in  the  long  run,"  will  be 
found  in  Chapters  XV-XXV,  and  XXXV-XXXVII,  on  the 
psychology  of  collection,  procedure,  and  retail  collections. 

A  Lesson  From  a  Country  Editor 

"But,"  says  the  retail  merchant,  or  his  big  brothers  the 
jobbers  and  manufacturers,  "this  is  all  theory.  These  re- 
forms are  nice  to  talk  about  but  they  can't  be  put  into  prac- 
tice." 

On  the  contrary,  modern  business  affords  so  many  illus- 
trations of  splendid  success  in  bringing  careless  customers  to 
the  right-about-face  that  it  is  hard  to  select  the  best  examples. 
The  two  following  are  given  from  among  many  that  came 
within  the  writer's  own  experience,  because  they  represent 
success  in  the  most  unlikely  cases. 

Is  there  any  man  whose  traditional  weakness  in  collec- 
tions is  greater  than  the  country  editor's?  If  one  is  to  believe 
all  the  jokes  at  his  expense,  no  one  ever  pays  him  for  past 
subscriptions,  while  a  new  subscriber  is  welcomed  with  ex- 
travagant gratitude.  The  editor  even  adds  to  his  own  bad 
reputation  and  "fouls  his  own  nest"  with  humorous  items 
about  the  dozen  eggs  or  the  basket  of  potatoes  which  someone 
has  paid  him  on  account.  He  puts  on  his  front  page  items 
like  the  following:  "This  week  eight  brand  new  subscribers. 


princes  of  the  earth,  came  in  to  take  the  vows  of  fealty  and 
received  in  return  a  certificate  which  permits  them  to  peruse 
our  records  for  a  year  and  browse  on  the  news  gleaned  from 
this  little  spot  of  the  world.  Our  welcome  for  you  new 
readers  is  as  true  and  hearty  as  though  you  came  in  company 
with  a  myriad  more.  Gladly  do  we  enter  your  names  on  our 
cards  and  escort  you  to  a  place  in  the  circle  of  light." 

A  few  years  ago  the  writer  was  asked  to  investigate  col- 
lection methods  for  the  benefit  of  a  state  association  of  news- 
paper men.  Among  the  energetic  and  businesslike  editors 
who  told  of  their  experience,  was  one  who  had  been  more 
than  commonly  successful  in  "taking  the  bull  by  the  horns" 
and  changing  at  one  blow  from  credit  to  cash. 

"How  did  you  do  it?"  I  asked  him. 

"Well,"  he  answered  with  a  smile,  "I  sent  them  a  nice 
taffy  letter.  It  was  the  most  successful  stroke  of  business  I 
have  used  in  twenty-three  years.  This  single  letter  brought 
me  in  nearly  a  thousand  dollars  and  practically  every  live 
account'  paid  one  year  in  advance.  I  was  able  to  buy  a  new 
press  with  the  money.  I  don't  know  what  made  it  succeed  as 
it  did,  except  its  novelty  and  the  fact  that  it  hit  the  spot." 

The  Thousand-Dollar  Letter 

Here  is  the  letter  that  brought  in  the  money  and  made 
friends  in  the  bargain.  The  reader  may  judge  for  himself 
whether  its  appeals  to  good-will,  pride,  and  self-interest  can 
be  adapted  to  his  own  collection  situation. 

Dear  Subscriber  and  Friend: 

I  am  putting  up  a  proposition  to  you  that  will  benefit  you  really 
more  than  it  will  me,  if  you  accept  it,  and  if  you  will  read  this 
letter  through  you  will  see  how  you  are  the  one  who  will  be  benefited. 

I  know  you  are  willing  to  do  your  share  toward  making  The 
Press  a  better  paper.  You  want  more  news  in  it,  though  many 
of  you  say  it's  the  best  paper  in  the  county  now.  It  is  by  such 
co-operation  as  I  am  now  asking  that  you  can  help  make  it  more 
newsy  and  consequently  a  better  paper. 


I 


iis 


48 


NEW   COLLECTION    METHODS 


THE   QUICK  "CLEAN-UP' 


49 


I  am  sure  you  will  appreciate  the  situation.  We  want  you  to 
have  a  better  paper  in  1918  than  ever  before  and  we  do  not  want 
to  stop  there;  we  want  it  better  every  year.  We  want  it  said  that 
we  have  the  best  paper  in  Northern  Wisconsin,  and  that  paper  is 

The  Press. 

My  proposition  is  simply  that  you  take  advantage  of  the  present 
and  pay  your  subscription  at  least  one  year  in  advance,  or  more; 
and  the  more  years  you  pay  for,  the  more  you  will  gain. 

To  speak  candidly,  we  are  proud  of  the  names  we  have  on  our 
subscription  list,  for  they  represent  the  intelligence  and  the  integ- 
rity of  this  whole  community. 

If  these  same  good  and  loyal  citizens  could  take  one  glance  at 
our  books  they  would  be  appalled  at  the  amount  of  money  that  is 
due  us  on  subscriptions  to  this  paper.  They  are  small  amounts  indi- 
vidually, ranging  from  50  cents  to  $2  or  $3,  marked  up  against  men 
and  women  whose  words  are  as  good  as  their  bonds. 

But  we  cannot  pay  our  own  bills  with  the  honor  and  the  integ- 
rity of  our  subscribers.  We  put  up  the  cash. 

I  want  to  make  some  improvements  in  our  equipment,  and  if 
the  money  (there  is  now  over  $2,000  past  due)  is  paid  in  at  one 
time  it  will  do  us  a  whole  lot  of  good — much  more  than  if  only  a 
few  subscribers  pay  in  driblets  scattered  through  the  year. 

Will  you  pay  up  your  back  subscription?  Will  you  help  us 
make  The  Press  "so  much  a  better  paper  that  there  will  be  no  com- 
parison" ? 


Your  subscription  was  paid  to  

$ will  pay  you  to 

Send  check,  draft,  or  money  order.     Do  It  Today. 

Very  truly  yours, 


191 

1st,  191 


l< 


A  Reformed  Grocery  Business 

Two  boys  of  nineteen  and  twenty-two  years  respectively 
were  presented  by  their  father,  a  prosperous  grocer  in  a 
Wisconsin  city,  with  the  stock  and  good-will  of  a  run-down 
grocery  store  which  he  had  purchased  in  another  part  of 
town.  A  thriving  competitor  was  located  across  the  street. 
"See  what  you  can  do  with  it,"  he  told  them.  The  youthful 
merchants  decided  to  begin  on  the  right  basis.  Their  capital 
was  limited,  but  they  had  the  doubtful  privilege  of  attempting 


to  collect  the  ancient  accounts  of  their  predecessor.  While 
they  were  about  it,  they  determined  to  change  their  terms 
from  30  days  to  two  weeks,  because  an  analysis  of  their  pos- 
sible trade  showed  that  it  was  mostly  made  up  of  railroad 
employees  who  were  paid  up  every  two  weeks.  They  issued 
this  letter  to  all  the  families  in  their  possible  trade  territory: 

Dear  Madam: 

The  new  firm  of  Johnson  Bros.,  Grocers,  at  the  corner  of  Park 
and  Kent,  offers  its  services  to  the  families  in  this  vicinity. 

A  pleasant,  clean,  wholesome-looking  store  will  be  our  first  en- 
deavor.    Come  in  and  see  how  well  we  look  after  our  remodeling. 

Prices  a  little  lower  than  you  find  elsewhere,  based  on  our  first- 
class  business  methods.  A  slip  will  accompany  every  purchase  made 
on  a  charge  account  and  your  bill  will  be  sent  you  promptly  at  the 
end  of  every  two  weeks,  the  time  when  you  find  it  most  convenient 
to  pay.  This  will  prevent  the  annoyance  of  having  a  large  bill  to 
pay  at  the  end  of  the  month,  and  is  a  service  we  are  sure  you  will 
appreciate. 

Standard  lines  of  groceries  that  you  can  trust. 

Courteous,  prompt,  intelligent  service. 

Just  as  an  example  of  our  endeavor  to  make  this  the  best  gro- 
cery store  in  this  part  of  the  city  we  want  you  to  come  in  to  our 
Saturday  special  sale  and  please  meet  us  and  get  acquainted.  We 
want  to  know  you  and  to  be  able  to  serve  you. 

Yours  truly. 

For  all  customers  having  past-due  accounts  a  special  letter 
was  issued  practically  the  same  as  the  foregoing,  but  urging 
them  to  "pay  up  now  or  come  in  and  talk  it  over  with  us. 
We  know  that  we  have  your  good-will  in  our  new  business 
and  we  want  your  help  in  giving  you  a  first-class  grocery 
store  in  this  part  of  the  city." 

These  letters  were  backed  up  by  vigorous  advertising  of 
the  Saturday  special  sales  which  were  made  the  occasion  for 
credit  interviews  with  all  new  customers.  Within  a  year  the 
store  was  in  a  strong  financial  position  and  had  a  thriving 
patronage.  Excellent  returns  were  received  from  old  ac- 
counts and  the  change  to  bimonthly  payments  was  so  success- 
ful that  it  was  presently  followed  by  many  other  merch:.nts. 


SELLING  AND   RESELLING  CREDIT 


51 


V 
1 


■ 


:i 


I    i 


; 


II 


CHAPTER    VII 
SELLING  AND  RESELLING  CREDIT 

"Credit  Is  More  Than  Half  of  Collections" 

The  strength  of  the  credit  man  in  collections  is  due  to 
three  reasons:  (i)  he  can  avoid  selling  to  the  class  of  cus- 
tomers most  likely  to  prove  delinquent;  (2)  he  has  many- 
opportunities  to  educate  customers  in  better  habits  of  pay- 
ment; and  (3)  his  prestige  is  so  great  that  customers  are 
desirous  to  retain  his  good-will.  He  deals  in  a  commodity, 
credit,  which  all  are  eager  to  get  and  which  all  fear  to  have 
withdrawn  from  them. 

The  methods  by  which  a  credit  man  judges  the  reliability 
of  customers  belong  properly  to  a  discussion  of  credits,  and 
are  touched  on  only  incidentally  in  this  book. 

This  and  the  following  six  chapters  discuss  at  length  the 
second  element  of  the  credit  man's  strength,  his  opportunities 
to  educate  his  customers  in  better  habits  of  payment  before 
serious  delinquency  arises.  In  the  language  of  the  trade,  he 
can  "sell  credit."  They  also  illustrate  the  methods  by  which 
he  uses  his  prestige  in  collections,  i.e.,  how  he  "resells"  credit. 

The  Diplomacy  of  Business 

The  credit  manager  is  really  in  the  best  position  to  sell 
credit  when  his  house  is  the  largest  single  creditor  of  his 
customer.  On  this  house  the  customer  is  genuinely  dependent ; 
if  it  does  not  let  him  have  the  goods,  because  his  indebtedness 
to  it  is  already  too  large,  he  is  face  to  face  with  ruin. 

The  credit  manager  in  such  a  position  carries  a  heavy 
burden.  His  operations  may  run  into  millions  of  dollars  a 
year;  merchandise  amounting  to  very  large  figures  has  been 

SO 


shipped  on  his  judgment,  based  on  evidence  which  to  the 
uninitiated  would  seem  exceedingly  hazardous.  His  problem 
is  enormously  greater  than  that  of  finding  some  appeal  which 
will  bring  a  reply ;  when  he  has  secured  his  reply,  his  prob- 
lem may  be  only  begun.  His  patience  must  be  inexhaustible, 
because  he  knows  better  than  the  customer  the  serious  con- 
sequences that  would  follow  an  actual  rupture  of  their  confi- 
dence. In  his  hands  lie  not  only  great  sums  of  money  but 
the  well-being  of  many  business  men  dependent  on  him  for 
credit,  on  whom  in  turn  rests  to  no  small  degree  the  pros- 
perity of  whole  communities. 

But  the  first  rule  of  the  modern  credit  manager  is:  "Ship 
your  goods" — do  not  be  overconservative,  or  you  will  lose 
money  for  your  house.  Then  his  problem  is  to  safeguard 
the  credit  risks  he  has  undertaken.  He  must  be  inexhaustible 
in  resources  for  meeting  the  countless  difficult  situations  that 
arise,  and  for  strengthening  his  hold  on  the  customer. 

The  confidential  coi  respondence  of  credit  men  in  this 
position  forms  a  record  of  the  inner  diplomacy  of  business. 
It  shows  them  mindful  on  the  one  hand  of  their  obligation 
to  maintain  their  terms  as  strictly  as  may  be,  but  on  the  other 
hand  ready  to  grant  extensions  of  time  and  arrange  for  part 
payment  rather  than  "break"  the  merchants  who  are  practi- 
cally dependent  on  them.  In  so  doing,  however,  they  must 
continually  keep  alive  in  a  customer  his  sense  of  obligation 
and  appreciation  for  the  treatment  accorded  him,  lest  he  be- 
come careless  and  abuse  his  privileges,  with  the  result  of 
destroying  the  whole  delicate  fabric  of  confidence  which 
makes  such  accommodations  possible.  Only  the  man  of  real 
ability  and  character  is  worthy  of  receiving  these  privileges. 

Can  Credit  Be  Sold? 

Sometimes   the   credit  man   in   discouragement   declares 
that  credit  is  the  cheapest  article  on  the  market;  that  it  can 


52 


NEW  COLLECTION  METHODS 


be  had  from  anyone  for  nothing.  But  the  history  of  the 
great  merchandising  houses  of  America  answers  decisively 
that  credit  can  be  sold  and  that  men  are  found  who  are  willing 
to  pay  the  price. 

The  Price  of  Credit 

The  price  of  credit  is  a  reputation  for  paying  one's  bills. 
"Anyone  can  have  goods  of  me,"  announces  the  merchant, 
"provided  he  has  the  price."  And  anyone  can  have  credit, 
provided  he  has  the  price,  in  the  form  of  a  good  record,  pres- 
ent ability  to  pay,  and  willingness  born  of  his  understanding 
of  the  value  and  obligations  of  the  credit  privilege. 

The  subject  is  by  no  means  exhausted  in  this  chapter  and 
the  work  of  the  credit  men  in  collections  is  further  treated  in 
Chapters  XV-XXV  and  XXIX,  on  the  psychology  of  collec- 
tion, procedure  of  collection,  and  system  for  a  collection  depart- 
ment. 

The  difficulty  in  the  sale  of  credit  lies  in  being  sure  the 
customer  is  really  "sold"  credit.  His  desire  to  trade  with 
a  house  may  be  caused  only  because  he  wants  the  goods, 
and  he  may  never  care  whether  or  not  he  obtains  credit  again. 
He  has  been  sold  the  goods ;  his  desire  for  them  was  aroused. 
But  did  he  want  them  enough  to  pay  cash  for  them  ?  If  so  he 
wanted  to  buy  only  the  goods;  if  not,  he  wanted  also  to  buy 
credit. 


"Arouse  Interest" 

The  credit  man  in  making  this  sale  of  credit  must  follow 
the  lines  of  good  salesmanship.  Why  should  an  applicant 
be  willing  to  pay  a  price  for  credit  if  he  has  never  become 
interested  in  it?  This  mightiest  force  in  the  business  world, 
this  structure  built  on  a  wonderful  fabric  of  confidence  and 
mutual  understanding,  this  system  that  holds  the  civilized 
world  securely  up,  but  that  would  be  shattered  like  a  house 


SELLING  AND   RESELLING   CREDIT 


S3 


of  cards  if  confidence  were  destroyed,  is  unknown  in  its  value 
to  many  of  the  men  who  blindly  entrust  their  fortunes  to  its 
operations.  The  banker  knows  its  nature;  the  wise  credit 
man  has  come  into  contact  with  it  and  has  had  his  imagina- 
tion quickened  by  the  experience;  but  many  another  man  is 
unmindful  of  the  delicate  adjustment  of  the  forces  that 
dominate  the  mercantile  world,  and  is  correspondingly  lax  in 
his  sense  of  obligation  to  the  structure  of  which  he  is  a  unit. 
By  virtue  of  his  superior  insight,  the  credit  man  can  arouse 
the  interest  of  his  customers  in  the  operations  of  credit,  the 
necessity  of  confidence,  the  necessity  of  paying  bills  promptly, 
and  above  all,  the  value  of  the  credit  privilege  to  the  customer 
himself. 

"Create  Desire" 

But  when  interest  is  aroused  the  credit  man  must  take  the 
next  step  in  perfecting  the  sale.  He  must  "create  desire" — 
desire  to  be  numbered  among  those  worthy  of  receiving  credit. 
Gratification  of  this  desire  is  in  part  a  gratification  of  pride 
in  having  a  good  financial  standing,  but  it  is  chiefly  a  gratifica- 
tion of  self-interest  through  the  ability  to  profit  by  the  value 
and  conveniences  of  credit. 


"Secure  Action" 

The  credit  man,  unlike  the  salesman,  does  not  secure  his 
action  in  the  form  of  a  signature  on  a  dotted  line,  nor  does 
he  receive  money  over  the  counter  and  watch  the  customer 
take  away  the  goods.  His  sale  is  made  when  the  customer 
has  been  made  willing  to  accept  the  obligations  as  well  as 
the  privileges  of  credit;  when  he  is  willing  to  Hmit  his 
purchases  to  what  he  can  reasonably  expect  to  take  care  of, 
when  he  is  willing  to  conduct  his  business  so  as  to  dispose 
of  goods  rapidly,  collect  for  them  energetically,  and  pay  for 
them   promptly,   instead   of   allowing  them   to   pile   up   on 


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54 


NEW   COLLECTION   METHODS 


SELLING  AND   RESELLING  CREDIT 


55 


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his  shelves  and  then  asking  extension  of  time  from  his 
creditors.  This  is  a  sale  that  may  be  made  progressively 
over  a  period  of  years.  After  all,  it  is  not  so  different  from 
the  operations  of  the  salesman,  who  has  recently  been 
defined  as  the  man  "who  can  get  a  dealer  to  order  goods 
without  asking  him  to  buy." 

The  Best  Time  to  Sell 

When  an  applicant  first  comes  before  the  credit  manager 
he  expects  an  investigation  of  his  standing,  and  this  accord- 
ingly is  the  best  time  to  sell  credit  by  arousing  the  customer's 
interest  in  the  subject  through  conversation.  Some  men  are 
wonderfully  skilful  in  conducting  the  talk  along  the  lines  of 
their  past  experience,  telling  anecdotes  about  customers  both 
in  the  past  and  present,  examples  of  both  good  and  bad  habits, 
in  a  way  that  makes  a  customer  feel  on  an  equality  with  the 
speaker,  and  plants  the  seed  of  an  appreciation  of  credit  that 
will  bear  fruit  in  time  to  come. 

When  applicants  for  credit  do  not  come  personally  before 
the  manager  but  are  approached  by  the  salesman  or  through 
the  mails,  the  manager's  opportunity  for  conveying  education 
on  the  subject  of  credit  is  in  his  letters  granting  credit,  refus- 
ing credit,  holding  up  the  order  pending  investigation,  ask- 
ing part  cash  or  draft  with  the  bill  of  lading  on  the  first  order, 
or  discussing  the  several  points  that  arise  in  connection  with 
the  information  desired.  If  the  information  has  come  direct 
from  the  customer  in  the  form  of  a  property  statement  or 
a  personal  letter,  his  advice  can  be  characterized  by  greater 
frankness  and  fulness. 

Selling  Credit  to  Established  Customers 

After  relations  have  once  begun,  the  credit  manager  has 
many  general  opportunities  to  send  printed  matter,  booklets, 
articles,  etc.,  on  credit.     But  numberless   special   occasions 


arise  which  present  advantages  for  the  discussion  of  points 
connected  with  credit.  These  are  set  forth  later  in  the  present 
chapter. 

Welcoming  a  Good  Customer 

An  applicant  for  credit  whose  rating  is  high  in  the  books 
of  the  commercial  agencies,  and  concerning  whose  standing 
a  salesman  has  a  satisfactory  report  at  the  time  of  the  order, 
would  have  his  first  order  shipped  without  further  investiga- 
tion.    Great  numbers  of  orders  can  usually  be  passed  on  by 
the  credit  manager  with  very  little  delay.    Perhaps  the  order 
is  relatively  small  and  can  be  shipped  merely  on  the  basis  of 
the  agency  rating ;  or  it  may  be  the  practice  of  the  house  to 
pass  all  orders  up  to  a  certain  amount  on  the  salesman's  recom- 
mendation, which  is  possible  only  where  the  salesman  has 
been  specially  trained  or  has  been  brought  fully  into  touch 
with  credit  policies.    The  credit  manager  may  have  received 
from  the  salesman  or  from  the  customer  the  names  of  other 
large  creditors,  and  may  be  satisfied  to  ship  on  this  basis; 
or  he  may  acknowledge  the  order  and  proceed  to  fill  it,  secur- 
ing the  necessary  information  from  the  other  houses  before 
shipping.     In  any  case  it  is  advisable  to  be  perfectly  frank 
in  allowing  the  customer  to  know  that  the  operation  of  allow- 
ing him  credit  has  not  been  slighted. 

The  following  is  a  letter  that  may  be  sent  on  receipt  of  the 
first  order.  It  asks  for  information  on  the  basis  of  which  credit 
relations  may  be  established: 

Dear  Sir: 

Your  order  of  May  14  has  been  received,  and  has  been  entered 
for  shipment  on  our  usual  ten-day  schedule. 

This  is,  we  believe,  our  first  dealing  with  you  and  we  take 
pleasure  in  welcoming  you  and  in  showing  you  our  appreciation  of 
your  business.  The  information  afforded  by  the  agencies  entirely 
warrants  our  shipment  of  this  first  order,  but  we  do  not  doubt  that 
you  would  prefer  to  come  to  a  more  personal  understanding  with  us  on 


h  * 


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NEW   COLLECTION   METHODS 


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57 


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the  basis  of  which  credit  may  be  extended  in  the  amount  which  you 
may  require.  Accordingly,  we  are  enclosing  the  usual  property 
statement,  but  we  should  be  glad  if  you  would  write  us  in  addition 
a  personal  letter  stating  what  your  business  opportunities  and  ex- 
pectations are,  so  that  we  may  find  ourselves  in  a  position  to  be  of 
service  to  you. 

We  shall  do  everything  possible  on  our  side  to  increase  per- 
sonal acquaintance  and  confidence  that  may  result  in  mutual  advan- 
tage. 

Yours  truly. 

Short  Letters  on  This  Subject 

There  are  many  occasions  when  such  a  letter  as  the 
foregoing  would  be  advantageous,  just  as  there  are  many 
in  which  a  shorter  letter  would  be  preferable. 

Where  the  investigation  will  delay  the  shipment  of  the 
order  the  customer  should  be  so  informed. 

Credit  and  Collection  Department 
Dear  Sir: 

Thank  you  for  your  order  of  May  14  which  has  just  reached 
this  department. 

It  will  be  delayed  a  few  days  pending  our  usual  routine  which 
we  hope  will  not  greatly  inconvenience  you. 

Very  truly  yours. 


Dear  Sir: 

You  have  been  kind  enough  to  favor  us  with  an  order  which 
we  shall  endeavor  to  handle  in  such  a  manner  as  to  merit  your  ap- 
proval and  be  the  means  of  further  extending  our  business  relations. 

We  believe  that  we  have  as  yet  no  definite  understanding  con- 
cerning the  opening  of  an  account,  but  we  assure  you  that  in  every 
businesslike  way  haste  will  be  urged  toward  this  end  so  that  your 
order  may  be  cared  for  as  soon  -as  possible. 

Yours  very  truly. 

Reselling  the  Goods 

In  case  the  information  is  inadequate  to  justify  the  ship- 
ment of  the  first  order  on  full  credit,  it  is  logical  for  the 
manager's  letter  to  increase  the  customer's  desire  for  the 


goods  at  the  same  time  that  a  hope  is  held  out  for  better  rela- 
tions on  the  basis  of  better  information.  Not  being  able  to 
sell  credit,  he  should  resell  the  goods. 

Dear  Sir: 

We  thank  you  for  your  first  order  of  November  10  to  be  shipped 
on  open  account.  We  take  pleasure  in  welcoming  you  as  a  customer 
of  this  house  and  we  believe  the  goods  you  have  selected,  which 
we  note  comprise  some  very  nice  values,  will  be  a  means  of  profit- 
able business  to  you. 

You  doubtless  desire  these  goods  for  early  use  so  that  it  would 
inconvenience  you  should  we  hold  them  pending  the  securing  of 
necessary  information  which  in  the  present  instance  we  do  not  seem 
to  possess.  Accordingly  we  suggest  that  you  send  us  by  mail  or 
wire,  cash  for  the  amount  of  half  of  the  bill  or  instructions  to  allow 
the  shipment  to  go  forward  with  sight  draft  attached  to  the  bill 
of  lading.  Either  of  these  methods  will  be  entirely  satisfactory  to 
us  and  will  place  the  goods  in  your  hands  in  time  for  you  to  make 
the  best  use  of  them. 

In  the  meantime  we  shall  prosecute  our  inquiry  as  rapidly  as 
possible,  and  to  this  end,  we  enclose  the  usual  form  of  property 
statement  which  we  would  ask  you  to  fill  out  in  detail.  Please  write 
us  also  a  frank  personal  letter  concerning  your  business  expecta- 
tions, etc.,  which  will  help  us  materially  in  becoming  better  ac- 
quainted. 

With  best  wishes  for  your  success. 

Yours  very  truly, 


''    ■!( 


CHAPTER    VIII 

REFUSING  CREDIT  COURTEOUSLY 

A  Tactful  Refusal 

A  house  doing  business  entirely  by  catalogue  when  re- 
fusing credit  tactfully  ascribes  its  action  to  the  scanty  infor- 
mation afforded  by  agencies  and  urges  the  customer  to 
deal  for  cash,  pointing  out  that  in  this  way  a  basis  for 
credit  relations  may  be  established. 

Dear  Sir: 

We  thank  you  for  your  courteous  letter  enclosing  an  order  to 
be  shipped  on  open  account.  Our  soliciting  orders  through  cata- 
logues causes  us  to  experience  considerable  diflficulty  in  obtaining 
needed  information,  so  that  consequently  in  very  many  cases  we 
are  obliged  to  depend  largely  upon  commercial  agencies  for  a  credit 
basis,  even  though  we  are  unable  to  guarantee  their  correctness. 

In  the  present  instance  we  are  very  sorry  to  find  the  mercantile 
report  somewhat  unfavorable,  so  that  until  we  can  become  better 
posted  we  cannot,  according  to  our  conservative  methods,  offer  you 
a  line  of  credit.  We  therefore  hope  that  you  may  feel  disposed  to 
accept  our  cash  terms  for  your  immediate  wants,  and  we  believe  a 
careful  consideration  of  our  circular  offers  will  enable  you  to  see 
your  way  clear  to  do  this. 

We  think  we  can  succeed  in  becoming  better  acquainted  in  this 
way,  and  we  trust  such  an  arrangement  may  prove  temporarily  satis- 
factory. We  hope  that  you  will  excuse  the  unavoidable  delay  in  re- 
plying to  your  letter. 

Yours  very  truly. 

Refusal  for  the  Customer's  Own  Good 

A  merchant  tailor  in  a  small  Illinois  city  developed  the 
unfortunate  idea  that  a  stock  of  furnishing  goods  would 
add  to  the  profits  of  his  business.  On  the  basis  of  the 
information  furnished  and  for  the  tailor's  own  good,  the 
credit  manager  turned  the  order  down;  but  the  tailor  un- 

58 


REFUSING  CREDIT   COURTEOUSLY 


59 


wisely  persevered.  He  discovered  another  credit  manager 
who  was  not  so  high-principled,  and  laid  in  a  small  stock. 
But  his  line  was  not  large  enough  to  enable  him  to  compete 
with  dealers  in  furnishing  goods  in  the  locality.  For  two 
years  the  scanty  profits  of  his  tailoring  business  were  drawn 
on  to  help  support  his  furnishing  business;  at  the  end  of 
that  time  he  passed  through  bankruptcy,  which  he  could  have 
avoided  by  taking  the  advice  given  him  by  the  first  credit 
manager. 

Dear  Sir:  .  . 

It  gives  us  pleasure  to  receive  your  letter  of  June  i8  informing 
us  that  you  are  in  the  tailoring  business  and  desire  to  put  in  a 
stock  of  furnishing  goods.  We  are  satisfied  that  our  class  of  mer- 
chandise is  what  will  be  desired  by  your  trade,  but  we  take  it  from 
your  letter  that  you  are  without  capital  and  would  expect  us  to  put 
in  your  stock  for  you. 

We  regret  that  we  are  not  in  a  position  to  do  so,  as  we  are 
strictly  a  one-price  house,  only  making  shipments  to  merchants  who 
have  sufficient  capital  invested  in  their  business  to  finance  it  prop- 
erly. We  would  suggest  your  arranging  to  have  somebody  in  part- 
nership with  you  who  would  be  able  to  contribute  sufficient  cash  to 
swing  the  furnishing  goods  department. 

We  trust  you  will  see  your  way  clear  to  make  some  arrange- 
ments to  put  in  a  stock  of  furnishing  goods. 

Very  truly  yours. 


Dear  Sir: 

We  have  before  us  your  letter  of  June  21  which  is  in  reply  to 
ours  of  the  20th. 

Before  answering  your  inquiry  regarding  whether  or  not  we 
are  in  position  to  extend  you  credit  this  season,  we  should  be  fully 
advised  regarding  your  affairs.  We  are  satisfied  regarding  your 
character,  good  intentions,  etc.,  but  we  desire  information  pertain- 
ing to  your  financial  condition. 

This  information  upon  the  blank  we  enclose  will  be  appreciated. 

Very  truly  yours. 


Dear  Sir: 

We   thank  you  very  much    for  the    frank  statement  of  your 
affairs  and  regret  if  it  has  taken  any  of  your  time  in  getting  it  up. 


5? 


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HI! 


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61 


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We  also  regret  sincerely  that  after  looking  it  over  and  giving 
the  matter  our  very  serious  consideration  we  cannot  see  our  way 
clear  to  extend  any  credit ;  in  fact,  we  would  advise  you  very  strongly 
against  putting  in  a  line  of  furnishing  goods  until  you  have  more 
cash  capital  with  which  to  do  it.  We  think  it  would  be  hazardous, 
and  you  are  doing  so  well  you  ought  not  to  do  anything  to  hurt  your 
present  business. 

Furnishing  goods  would  without  question  add  to  your  sales  and 
profits,  but  you  cannot  get  the  right  lines  unless  you  have  sufficient 
capital  to  pay  for  them  when  due.  You  may  get  plenty  of  houses 
whose  lines  you  would  not  carry  to  extend  you  credit,  but  we  think 
it  would  be  much  better  for  you  to  go  ahead  another  year,  when  you 
will  no  doubt  be  able  to  accumulate  sufficient  capital  to  justify  you 
in  starting  in  on  a  small  scale,  which  you  could  very  easily  do. 

We  regret  our  inability  to  meet  your  wishes;  we  should  be 
very  glad  to  do  so  if  we  could  consistently. 

Yours  very  truly, 

Asking  Additional  Capital 

In  another  instance  a  merchant  willingly  supplied  the 
information  requested,  but  this  was  so  unfavorable  as  to 
cause  the  credit  manager  to  write  him  expressing  apprecia- 
tion of  his  attitude  but  pointing  out  that  were  his  order 
filled,  he  would  be  doing  nothing  more  or  less  than  gam- 
bling on  the  weather.  Additional  capital  was  an  absolute 
necessity.  This  the  merchant  was  able  to  supply  and  the 
goods  were  eventually  shipped. 

Dear  Sir: 

The  information  which  you  mailed  me  on  April  27  has  come 
to  my  desk;  thank  you  for  the  promptness  and  fulness  of  your 
answer. 

Evidently  your  resources  bear  a  dangerous  proportion  to  your 
liabilities,  since  you  are,  as  you  frankly  state,  somewhat  undercapi- 
talized. We  appreciate  that  you  are  just  beginning  business,  and 
that  your  favorable  location  and  the  other  circumstances  in  your 
favor  make  it  probably  only  a  question  of  a  short  time  before  you 
will  be  well  established.  But  in  the  meantime  we  should  be  doing 
you  an  injustice  if  we  did  not  point  out  frankly  the  dangers  of  such 
a  position.  If  your  sales  materialize  as  you  have  reason  to  expect 
they  will,  you  will  be  safe;  but  if  a  bad  season  should  intervene,  you 


would  be  seriously  involved.  Since  you  have  not  the  experience 
of  previous  sales  to  guide  you  in  your  estimate  of  your  needs  for  the 
present  season,  your  only  guide  must  be  the  amount  you  can  stand  to 
lose,  making  proper  allowances.     Evidently  in  the  present  case  this 

is  decidedly  small. 

If  you  can  secure  an  addition  to  your  present  capital,  say  of 
$1,500,  we  shall  be  glad  to  let  the  order  stand,  though  we  should 
advise  cutting  down  the  item  of  overcoats  to  one-half  its  size  for 
present  shipment,  reserving  the  remainder,  if  you  wish,  for  a  later 
date  in  case  your  locality  uses  less  of  these  goods  than  your  order 

estimates. 

In  the  meantime,  it  is  a  pleasure  to  indorse  your  position  of 
co-operating  fully  with  the  house  with  which  you  deal,  and  to  assure 
you  that  we  shall  be  glad  to  give  you  all  the  help,  in  advice  as  well 
as  in  terms,  which  we  consistently  can. 

Very  truly  yours. 

Asking  Cash  with  First  Order 

A  manufacturer  dealing  with  grocers  was  obliged,  fol- 
lowing a  reorganization  of  his  business,  to  lay  down  very 
strict  rules  covering  all  first  orders.    The  explanation  was: 

Dear  Sir: 

We  thank  you  for  your  order  through  our  Mr.  Arnold.  While 
we  appreciate  the  business  we  suggest  that  in  the  absence  of  financial 
information  that  would  help  us  to  establish  a  credit  for  you,  this 
order  be  sent  forward  C.  O.  D. 

Our  Directors  have  laid  down  a  rigid  rule  that  all  accounts  with- 
out an  established  credit  should  be  sent  forward  on  a  C.  O.  D.  basis. 
When  the  necessary  information — that  is  to  say,  a  statement  of 
affairs  or  balance  sheet — is  received  and  a  credit  established,  then  we 
can,  of  course,  extend  the  regular  terms  of  30  days. 

You  will  understand,  of  course,  that  this  is  merely  a  precautionary 
measure  applying  to  all  with  whom  we  do  business,  and  we  trust  you 
will  appreciate  the  spirit  in  which  this  letter  is  written.  We  are  in 
the  same  relation  to  our  dealers  as  you  are  to  your  customers,  and  if 
you  look  at  it  in  that  way  I  am  sure  you  will  understand  our  position. 

In  your  case,  it  is  probable  that  we  could  establish  a  credit  to  an 
extent  sufficient  for  your  needs.  Meanwhile  in  order  to  save  time  we 
would  suggest  that  you  allow  us  to  forward  this  order  C.  O.  D.,  and 
we  will,  of  course,  allow  you  a  cash  discount  of  2%. 

Please  use  the  enclosed  card. 

Yours  truly,  . 

•'*  Accountant 


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63 


i 


A  certain  house  dealing  with  many  unrated  merchants 
handles  in  consequence  a  large  volume  of  cash  transactions, 
requiring  part  cash  in  advance  and  the  balance  on  delivery. 
If  a  customer  overlooks  these  terms  the  following  letter 
is  sent. 

Dear  Sir: 

We  appreciate  the  order  you  were  kind  enough  to  send  us,  which 
we  hope  to  be  able  to  fill  and  ship  in  accordance  with  your  wishes. 

However,  as  you  have  overlooked  or  misunderstood  one  require- 
ment of  our  printed  terms,  we  feel  obliged  respectfully  to  call  your 
attention  to  it. 

In  doing  a  very  large  C.  O.  D.  business,  very  frequently  with 
customers  of  whose  financial  affairs  we  have  not  been  advised,  we 
have  found  it  necessary  to  ask  an  advance  payment  with  each  C.  6.  D 
shipment  of  enough  merely  to  cover  the  freight  or  express  charges 
and  msure  delivery.  This  sum  together  with  the  regular  discount 
we  deduct  from  the  amount  of  the  invoice,  and  the  balance  only  is 
collected  through  your  nearest  bank  upon  arrival  at  your  station. 

We  believe  if  you  will  consider  the  position  in  which  we  are 
placed,  you  will  comply  with  our  request,  and  we  assure  you  that  your 
order  will  receive  every  possible  care  and  attention. 

Yours  very  truly, 

Occasionally  one  of  these  customers  sends  in  an  order 
asking  credit,  believing  that  his  standing  as  a  cash  customer 
will  influence  the  house  to  give  him  credit  standing.  The 
following  courteous  letter  is  sent  him  as  a  means  of  educat- 
ing him  concerning  the  basis  on  which  credit  is  granted. 
Dear  Sir: 

Thank  you  very  much  for  your  order  of  March  8,  which  we  have 
just  received.  On  referring  to  your  account  we  notice  that  while 
your  past  transactions  have  been  very  satisfactory  to  us  yet  it  has 
been  your  custom  to  accompany  each  order  with  a  remittance  In- 
deed, there  is  now  standing  to  your  credit  a  balance  of  $425.  We  are 
not,  however,  fully  advised  as  to  your  credit  standing. 

The  rules  of  all  responsible  wholesale  houses  require  that  some 
information  be  given  before  they  can  offer  time;  this  can  generally  be 
obtained  most  speedily  from  references.  If  you  will  be  kind  enough 
to  name  for  us  your  bank  or  wholesale  houses,  we  will  make  the  neces- 
sary inquiries  as  quickly  as  possible. 


We  believe  the  results  will  be  satisfactory,  and  regret  only  the 
unavoidable  delay  to  your  order.    We  await  your  instructions. 

Yours  very  truly, 

A  large  hardware  jobber  was  asked  for  credit  by  a 
merchant  whose  stock  on  investigation  was  found  to  be 
covered  by  a  mortgage.  Instead  of  turning  the  order  down 
flatly  or  even  simply  refusing  it  courteously,  the  manager 
was  so  favorably  impressed  by  the  merchant's  personal 
ability  that  he  offered  to  ship  the  goods  provided  the  cus- 
tomer would  promise  to  discount  every  bill.  If  this  were 
impracticable,  he  suggested  that  60-day  terms  could  be 
allowed  provided  the  account  could  be  guaranteed.  The 
courtesy  and  reasonableness  of  the  letter  influenced  the 
customer  favorably,  a  guarantor  was  provided,  and  the 
goods  were  shipped. 

Dear  Sir: 

We  have  received  and  thank  you  for  the  order  recently  given  to 
Mr.  Daly,  which  will  have  prompt  attention  immediately  upon  receipt 
of  your  reply  to  this  letter. 

All  authorities,  including  Mr.  Daly,  speak  of  you  very  highly  in 
every  way,  and  we  have  entire  confidence  in  your  personal  qualifica- 
tions and  do  not  question  it  is  your  firm  intention  honorably  to  dis- 
charge your  obligations.  But  there  is  a  mortgage  on  your  stock  of 
goods  which  operates  as  a  first  lien  in  favor  of  the  mortgagee  and 
serves  as  a  menace  to  other  creditors.  Our  observation,  covering  an 
experience  of  over  half  a  century,  has  been  unfavorable  to  the  ex- 
tension of  regular  credit  terms  under  such  circumstances,  and  we 
want  to  ask  if  it  will  not  be  agreeable  to  you  to  accept  our  goods, 
until  this  mortgage  has  been  discharged,  with  the  understanding  that 
each  bill  shall  be  paid  promptly  within  ten  days  of  the  date  of  the 
invoice  less  the  2  per  cent  cash  discount.  Upon  being  advised  that 
these  terms  are  satisfactory  we  will  promptly  forward  the  goods. 

If  for  any  reason  you  find  it  impracticable  to  accept  our  ship- 
ments on  this  basis,  we  could  arrange  to  give  you  60-day  terms  and 
liberal  extensions  when  needed,  if  you  will  have  our  account  guaran- 
teed by  some  relative  or  friend  whose  financial  responsibility  is  strong 
and  above  question.  Should  you  decide  to  act  upon  this  latter  sugges- 
tion, the  enclosed  blank  will  be  found  well  adapted  to  the  purpose. 
You  will  notice  that  the  guarantor  may  limit  his  liability  to  whatever 


j^nrnpli: 


B|8MM|igt 


r 


ft! 


64 


NEW   COLLECTION  METHODS 


figures  are  inserted  in  the  blank.    Your  signature  as  a  witness  to  the 
guaranty  would  be  proper.  witness  to  the 

..  f^\u^^  gTjaranty  is  sent  in,  please  give  us  all  possible  information 

we  aStTouVSpS:  ''''''  ^'"  <=--  ^-  -  inconvenience,  and 

Very  truly  yours. 


CHAPTER    IX 


INFORMATION    FROM    THE    CUSTOMER 


The  Property  Statement 

Among  all  the  various  sources  of  credit  information,  only 
two  can  be  said  to  have  direct  effect  on  the  customer,  to  in- 
crease his  interest  in  his  credit  obligation.  These  are,  first 
the  report  of  the  salesman,  who  usually  asks  the  customer 
some  questions  even  though  he  may  get  the  majority  of  his 
data  from  outside  sources,  and  second,  the  information  from 
the  customer  direct  as  given  in  the  property  statement  or  in 
correspondence.  The  customer  should  not  be  allowed  to  feel 
that  the  formalities  of  giving  credit  are  empty  of  the  personal 
quality.  Character  and  personal  ability  are  such  important 
assets  as  even  to  outrank  capital.  Consequently  it  is  a  personal 
compliment  to  grant  an  application  for  credit,  and  there  is 
every  reason  for  making  the  applicant  feel  it  as  such.  A  good 
plan,  therefore,  is  to  ask  the  applicant  to  write  a  full  letter 
setting  forth  his  business  expectations,  and  asking  the  man- 
ager's advice  about  any  points  he  may  be  willing  to  mention. 
If  he  sees  the  credit  manager  face  to  face,  an  interest  in  his 
personal  character  can  easily  be  shown  and  the  same  is  true 
if  the  salesman  or  a  representative  of  the  credit  department 
calls  on  him. 


Showing  Where  His  Interest  Lies 

In  all  his  campaign  on  the  subject  of  credit  education,  the 
credit  man  should  take  pains  to  appeal  to  the  customer's  own 
interest  and  not  merely  to  his  obligations.  The  customer  is 
very  little  concerned  with  the  general  welfare  of  the  financial 

6s 


66 


NEW  COLLECTION  METHODS 


world,  but  he  is  very  much  concerned  with  overstocking  or 
higher  prices  in  his  own  business.  What  they  mean  to  him 
if  he  does  not  pay  promptly  is  simply  that  he  is  unable  to  get 
fresh  goods  at  the  best  market  season,  because  he  has  already 
reached  his  credit  limit.  But  why  has  he  a  credit  limit?  For 
his  own  protection,  as  much  as  for  that  of  his  creditors.  If 
his  orders  are  held  up,  or  if  he  is  asked  to  reduce  them 
temporarily,  it  is  because  he  has  already  loaded  himself  up 
with  as  much  goods  as  he  can  dispose  of  during  the  current 
season,  and  to  take  more  would  be  simply  to  invite  disaster. 
If  the  channels  of  his  business  are  already  clogged  with 
merchandise,  the  remedy  is  not  to  pour  fresh  merchandise 
into  them  but  first  to  clear  the  channels  by  a  sale  at  reduced 
prices,  and  thereafter  to  buy  closer  to  his  needs  and  push 
sales  harder.  The  very  heart  of  the  credit  relation  is  co- 
operation. What  is  to  the  interest  of  one  is  to  the  interest 
of  all;  it  cannot  be  otherwise. 

Meeting  Objections  to  the  Statement 

When  an  objection  is  raised  by  the  new  applicant  to  sup- 
plying credit  information,  explanation  can  be  made  on  the 
basis  of  the  customer's  own  interest  and  on  the  general  ex- 
perience of  the  house.  "It  has  always  been  our  experience," 
writes  one  credit  manager,  "that  information  received  from 
the  customer  direct  is  more  detailed  and  personal  and  con- 
sequently gives  us  a  better  idea  of  him  than  if  we  were 
obliged  to  rely  entirely  on  outside  sources.  Allow  me  to  say 
frankly  that  this  is  very  much  to  your  advantage,  and  that 
we  are  glad  to  have  it  so,  because  your  ability  to  conduct 
your  business  is  without  question  your  principal  asset,  and 
we  can  form  an  idea  of  this  that  is  fair  to  you  only  by  the 
frankest  correspondence,  preferably  by  a  personal  interview. 
If  you  find  this  latter  possible  at  any  time,  we  shall  be  most 
heartily  glad  to  see  you  in  our  office.     Bear  in  mind  that 


iti 


INFORMATION   FROM   THE   CUSTOMER 


67 


you  are  privileged  to  come  to  us  at  all  times  with  the  same 
frankness  that  we  are  now  showing  in  coming  to  you.  I 
trust  we  shall  have  many  occasions  for  showing  our  good- 
will by  suggestions  that  will  result  to  our  mutual  profit." 

An  Interesting  Correspondence 

Thanks  to  the  unwearied  efforts  of  good  credit  managers 
both  as  individuals  and  through  their  various  associations, 
most  customers  understand  the  advantage  to  them  of  filling 
out  property  statements.  But  many  merchants  are  totally 
unable  to  make  satisfactory  statements  because  they  keep  no 
books  worthy  of  the  name;  others  are  unwilling  to  take  the 
time  required.  In  the  interesting  case  represented  by  the 
following  correspondence  the  manager  impressed  the  impor- 
tance of  the  credit  relation  on  the  customer's  mind  by  patient, 
courteous  explanation.  The  first  letter  sent  on  receipt  of 
the  order  shows  the  wholesaler's  appreciation  of  the  new 
business. 

Dear  Sir: 

We  are  in  receipt  of  the  handsome  order  you  kindly  gave  Mr. 
Marsh,  and  the  goods  are  being  prepared  for  August  15  shipment 
as  directed. 

Mr.  Marsh  informs  us  you  will  shortly  open  a  new  store  and  have 
$5,000  cash,  and  expect  to  put  in  a  stock  of  about  $10,000.  We  do  not 
quite  understand  whether  this  $5,000  is  all  your  own  money  or  if  part 
of  it  has  been  borrowed.  We  would  appreciate  your  advising  us 
regarding  this  matter,  so  that  our  account  may  be  opened  under- 
standingly. 

We  presume  Mr.  Marsh  explained  our  terms  on  an  opening  bill ; 
namely,  that  we  expect  one-half  cash  in  advance  of  shipment  where 
sufficient  information  is  furnished  to  make  credit  for  the  balance  of 
the  order.  We  therefore  trust  you  will  send  a  check  for  approxi- 
mately $450  at  your  convenience,  and  of  course  on  this  amount  we  will 
allow  an  extra  i  per  cent  in  lieu  of  terms  and  dating. 

We  thank  you  for  your  early  reply,  and  wish  you  the  greatest 
possible  prosperity  in  your  new  venture. 

Yours  truly, 


68 


NEW   COLLECTION   METHODS 


INFORMATION   FROM  THE   CUSTOMER 


r 


\ 


As  no  reply  was  received  to  this  letter  the  manager  wrote 
repeating  the  points  originally  made.  The  customer  failing  to 
reply  to  this  letter  was  written  again  as  follows: 

Dear  Sir: 

We  greatly  regret  to  learn  we  do  not  seem  to  have  received  a 
reply  to  our  letter  of  July  27,  asking  you  for  information  regarding 
your  affairs,  as  well  as  for  a  remittance  of  $450  to  apply  on  the  order 
recently  placed  with  Mr.  Marsh. 

As  he  undoubtedly  explained  to  you,  our  arrangement  on  opening 
purchases  is  one-half  cash  in  advance  of  shipment  and  a  reasonable 
dating  on  the  balance,  where  sufficient  credit  information  is  given  to 
justify  the  extention  of  credit  of  such  an  amount.  As  yet,  we  do  not 
seem  to  have  any  information  regarding  your  affairs  as  a  basis  for 
credit,  and  therefore  we  trust  you  will  write  us  promptly. 

Thank  you  for  your  prompt  reply. 

Yours  truly, 

In  the  meantime  the  merchant  had  written  the  wholesaler 
an  angry  letter  asking  why  his  fall  goods  were  not  shipped 
and  demanding  that  this  be  done  immediately.  The  credit 
manager's  reply  points  out  that  the  customer  is  losing  time 
in  not  complying  with  the  request  for  information,  but  his 
letter  is  as  courteous  as  before,  though  it  is  more  definite  in 
tone. 

Dear  Sir: 

We  are  in  receipt  of  your  letter  of  August  27,  asking  us  to  make 
shipment  of  your  fall  goods  as  soon  as  possible.  We  presume  by  this 
time  our  letter  of  August  27  has  reached  you,  reminding  you  that  our 
opening  terms,  as  also  explained  in  our  letter  of  July  27,  are  one-half 
cash  in  advance  of  shipment  where  certain  credit  information  is 
furnished  to  enable  us  to  extend  a  credit  of  the  balance  of  the  order. 
We  therefore  trust  you  will  send  a  prompt  check  as  requested. 

We,  on  our  part,  will  promptly  take  up  the  matter  of  obtaining 
information  from  your  references,  but  as  this  of  course  takes  time, 
we  would  much  prefer  to  have  you  yourselves  advise  us  how  much 
you  have  incorporated  for;  what  part  of  this  amount  is  paid  in  in 
cash;  how  much  stock  you  expect  to  carry,  and  such  other  informa- 
tion as  will  enable  us  to  open  the  account  understandingly.  As  you 
yourselves  must  know  these  various  matters  better  than  any  outside 


69 


party,  we  feel  you  are  the  best  ones  to  send  correct  information  and 
will  thank  you  for  a  prompt  reply. 

We  wish  you  the  greatest  success  in  your  new  venture. 

Yours  very  truly. 

On  September  4  the  customer,  whose  goods  had  been 
ordered  for  August  1 5  shipment,  sent  another  peremptory  de- 
mand for  the  shipment  of  his  goods,  giving  the  names  of 
other  houses  who  had  shipped  to  him  and  saying  that  he  con- 
sidered this  a  basis  for  credit  extension.  The  manager,  how- 
ever, held  to  his  position  in  the  following  letter,  which  at 
length  brought  the  desired  letter  and  the  goods  were  shipped. 

Dear  Sir: 

We  are  in  receipt  of  your  letter  of  September  4,  which  we  regret 
to  see  does  not  contain  a  check  nor  any  information  as  a  basis  for 
credit 

We  have  written  you  three  letters,  namely,  on  July  27,  August  27, 
and  September  5,  explaining  that  on  an  opening  bill  our  terms  are 
one-half  cash  in  advance  of  shipment  where  sufficient  information  is 
given  to  justify  a  credit  of  the  remainder  of  the  order.  You  have 
given  us  no  credit  information  whatever,  and  unless  you  do  so  we 
shall,  of  course,  expect  a  remittance  in  advance  to  cover  the  amount 
of  the  entire  order. 

We  presume  the  firms  to  whom  you  refer  have  shipped  their  first 
orders.  In  that  case  they  would  have  no  experience  whatever  with 
you,  and  as  you  yourselves  must  know  more  about  your  affairs  than 
outside  parties,  we  prefer  to  obtain  this  information  direct.  We  trust 
you  will,  therefore,  promptly  comply  with  our  previous  suggestions, 
and  send  the  information  and  half  cash,  or  send  cash  to  cover  the 
entire  amount  of  the  order. 

Thank  you  for  your  early  reply. 

Yours  very  truly, 

The  important  consideration  in  this  story  of  actual  ex- 
perience is  that  the  credit  manager  suspected  this  account  and 
wished  to  protect  himself  against  future  slowness  in  payment 
by  being  unusually  careful  in  introductory  relations.  The 
sequel  showed  that  his  judgment  was  well-founded.  The 
merchant's  stubbornness  and  carelessness  speedily  got  him 
into  difficulty;  but  the  credit  manager's  firm  grasp  on  the 


70 


NEW  COLLECTION   METHODS 


INFORMATION   FROM   THE  CUSTOMER 


71 


reins  saved  the  situation  and  the  merchant  eventually  handled 
his  business  with  a  new  regard  for  the  credit  obligation.  It 
took  two  years  to  "sell  credit"  to  this  man,  but  at  last  the 
sale  was  accomplished. 

Demanding  Information 

The  hardware  jobber  above  referred  to  received  an  order 
from  a  customer  whose  affairs  he  judged  to  be  in  a  shaky 
condition.  While  not  feeling  justified  in  holding  up  the 
order,  he  nevertheless  wrote  a  very  firm  letter  demanding 
full  information  and  pointing  out  that  the  merchant's  refusal 
to  supply  the  property  statement  would  operate  against  his 
own  best  interest.  The  manager  went  so  far  as  to  disclose 
to  the  customer  the  serious  information  he  had  received. 

Dear  Sir: 

We  thank  you  for  the  order  recently  given  to  Mr.  Oaks,  and  shall 
immediately  forward  the  goods. 

Nowadays  it  is  the  practice  of  nearly  all  merchants  to  submit  at 
intervals  of  not  exceeding  a  year,  statements  of  their  financial  condi- 
tion. Sometimes  these  reports  are  made  through  the  mercantile 
agencies  and  sometimes  direct  to  the  wholesalers.  So  far  as  we  can 
find  you  do  not  appear  to  have  given  this  information  to  anyone  and 
therefore  we  lack  the  data  upon  which  to  form  a  positive  opinion  as 
to  your  financial  condition.  Mercantile  authorities  speak  well  of  you 
in  a  general  way  and  we  believe  you  are  entirely  responsible.  If  it 
had  been  your  custom  to  pay  your  invoices  promptly  or  to  discount 
them,  favorable  information  of  that  character  would  be  a  satisfactory 
basis  for  such  credit  as  you  may  require  of  us;  but  when  you  so 
frequently  permit  our  invoices  to  run  beyond  their  maturity  before 
settlement  we  feel  that  as  a  reasonable  business  proposition,  we  are 
fairly  entitled  to  a  closer  knowledge  of  the  situation.  If  your  finan- 
cial affairs  are  in  a  creditable  condition  (as  we  believe  them  to  be) 
you  should  not  hesitate  to  take  us  into  your  confidence.  Any  report 
which  you  may  submit  to  us  will,  if  you  so  instruct,  be  held  as  strictly 
confidential  and  you  will  find  that  the  better  acquaintance  between  us 
thus  brought  about  will  be  beneficial  to  yourselves  as  well  as  to  us. 
It  hardly  requires  argument  to  support  the  proposition  that  when  a 
merchant  frequently  finds  it  inconvenient  to  pay  at  maturity,  a  frank 


disclosure  of  his  financial  condition,  if  his  affairs  are  on  a  substantial 
basis,  will  result  to  his  advantage. 

If  your  merchandise  has  not  recently  been  inventoried,  your 
conservative  estimate  of  its  value  will  answer.  Precise  and  complete 
figures  of  the  indebtedness  are  desired,  but  your  books  will  enable 
you  very  quickly  to  give  the  information  requested  in  our  letters  of 
August  10  and  August  20.  We  again  ask  if  you  will  not  kindly  let 
us  have  at  once  the  brief  report  suggested  by  the  printed  blank  en- 
closed, and  assure  you  your  prompt  and  favorable  consideration  of 
this  request  will  be  much  appreciated. 

Our  monthly  statement  of  your  valued  account  showing  overdue 
items  to  the  amount  of  $684  is  enclosed.  Kindly  let  us  know  your 
pleasure  concerning  them. 

Please  accept  our  best  wishes  for  your  continued  prosperity. 

Yours  very  truly. 

Handling  an  Extension 

When  the  credit  manager  has  maae  up  his  mind  that  the 
customer's  failure  to  pay  is  due  to  his  need  of  the  money, 
he  may  make  use,  as  does  the  following  correspondence,  of 
his  knowledge  of  local  conditions  to  appeal  to  his  customer's 
confidence  and  to  get  him  to  respond  to  an  offer  of  an  exten- 
sion of  time. 

Dear  Sir: 

We  have  received  no  communication  from  you  in  reply  either  to 
our  statements  or  our  letter  of  January  31. 

We  believe  that  our  previous  statements  must  have  been  over- 
looked by  your  clerks,  as  we  well  know  what  pride  you  have  taken  in 
the  matter  of  prompt  payment.  We  have  always  been  glad  to  have 
you  take  our  cash  discount  and  on  the  basis  of  past  relations  have 
been  able  to  give  you  a  more  liberal  discount  than  we  could  afford  to 
allow  smaller  customers.  Won't  you  investigate  this  matter  person- 
ally, as  we  would  like  to  locate  the  error. 

We  are  aware  that  the  recent  crop  failure  in  your  locality  has 
made  local  collection  difficult,  and  that  this  may  very  possibly  make 
it  difficult  for  you  to  meet  your  bills  with  your  usual  promptness. 
Again,  poor  conditions  have  decreased  the  sales  in  your  higher  priced 
lines  of  goods.  If  you  are  impaled  upon  either  horn  of  this  dilemma, 
please  do  not  fail  to  let  us  know,  for  if  we  tmder stood  the  situation 
fully  we  could  very  probably  offer  a  solution. 

Very  truly  yours> 


IV 


72 


NEW  COLLECTION   METHODS 


INFORMATION   FROM   THE   CUSTOMER 


73 


°"  wi 'thank  you  very  much  for  your  letter  of  February  2.  exp'^!^ 
ing  the  difficulties  that  you  are  encountering  m  collect.ng  debts  from 

'^"  wr/re  convinced  that  the  situation  is  purely  local  and  that  it  is 

-Hb  rrs.  ,-;f  i^r  t- ; ■== 

will  no  doubt  be  much  improved  in  your  locality. 

Onr  exDcrience  in  such  matters,  however,  would  lead  us  to  sug 
Our  experience  in  ^^.^  ^^^^^^^  especially 

^'^V^V^^rr  orked  h'n  s     We  beUeve  that  you  might  easily  injure 
;"outl^b^7rn^  would  tie  up  considerable  of  your  capital 

^^  ^  Wf  :iry^u'r-best  of  success  in  your  efforts  and  trust  that 
we  may  have  the  opportunity  of  serving  you  in  the  near  future. 
^  Very  truly  yours, 

A  Letter  of  Discussion  ^^ 

Differing  somewhat  from  the  "general  manager  letter 
presented  elsewhere  in  this  book  (see  page  2i6)  .s  the 
following  letter  of  discussion  from  the  controller  of  a  cer- 
.tain  direct-selling  manufacturer  written  to  a  <=u^tomer  whose 
account  is  large  enough  to  make  his  cred.t  an  object  to  h  m 
Consequently  this  letter  resells  credit  and  makes  use  at  the 
same  time  of  several  appeals  to  pride  and  fair  play. 

'^  We  have  a  little  plan  in  our  office  under  vdiich  our  collection 
Hpn»rtment  brines  to  my  attention  every  now  and  then  the  accounts 
Shave  Kn  our  books  longer  than  they  should.  I  suppose  you 
7oUow  sot^ewhat  the  same  rule  of  looking  over  your  accounts  every 

'°  °lfisn't  necessary,  of  course,  for  one  business  man,  in  talking  to 
another  to  point  out  the  need  for  prompt  settlement  of  accounts  And 
Tarn  not  going  to  talk  that  way  to  you.    You  understand  that  phase 

of  the  matter  as  well  as  I  do.  s-rause  the 

I   find,   however,   that   sometimes  peop  e   feel  that  because  the 
House  of  Phelps  has  grown  to  somewhat  large  proportions   ,t  can 
afford  to  wait  for  the  settlement  of  an  account  here  and  there.    That 
of  course    is  perfectly  true.     But  if  I  as  a  merchant  pay  my  bills 
Jjomptly  when'  they  L  due,  and  my  competitor  in  the  next  block  or 


in  the  next  town  is  permitted  to  let  his  bills  run  60  days  or  more,  it  is 
clear  that  I  am  not  getting  a  square  deal.  He  has  a  credit  advantage 
over  me. 

I  find,  too,  that  a  great  many  merchants  do  not  realize  that  the 
reason  we  have  been  able  to  bring  into  the  market  cheap  goods  and  to 
keep  improving  them  constantly  was  our  insistence  upon  rigid  economy 
and  good  business  dealings  all  along  the  line.  Just  as  you  make  most 
of  your  money  in  quick  turnover  of  your  capital,  so  we  also  must 
turn  over  our  capital  frequently. 

There  is  another  little  point  which  is  important  to  the  merchant, 
and  which,  frequently,  does  not  occur  to  him.  He  can  afford  to  pay 
6  or  even  7  per  cent  to  borrow  money  in  order  to  discount  bills  at  i 
per  cent.  One  per  cent  in  30  days  m^ans  12  per  cent  a  year.  If  you 
borrow  at  6  per  cent,  there  is  a  clear  gain  of  6  per  cent  for  the  year 
on  the  transaction.  That's  more  than  a  good  many  safe  stocks  and 
bonds  pay  you. 

This  is  just  a  friendly  letter,  the  purpose  of  which  is  to  have  you 
get  after  the  person  in  your  establishment  who  has  delayed  sending 
up  a  check  for  your  account,  because  I  know  that  you  yourself,  in 
view  of  some  of  the  things  I  have  mentioned  herein,  would  not  allow 
an  account  to  drag  unnecessarily. 

The  collection  department  wanted  to  proceed  in  the  usual  way  to 
collect  our  account,  but  I  stopped  them  in  order  to  write  you  per- 
sonally. I  am  perfectly  convinced  that  you  will  respect  our  confidence 
in  you. 

Sincerely  yours, 


Controller 


^  i: 


■i '  i 


CHAPTER    X 

REFUSAL    TO    SHIP    GOODS 


Holding  Up  the  Order 

An  absolute  refusal  to  ship  his  goods  is  the  last  step  a 
credit  manager  is  willing  to  take,  but  he  is  very  frequently 
confronted  by  the  need  to  hold  up  orders  pending  until  the 
customer's  indebtedness  for  previous  orders  is  settled. 

A  furniture  manufacturer  had  a  slow-pay  customer  who 
was  nevertheless  entirely  good  for  the  amount  of  his  order. 
There  came  a  time  when  the  manufacturer  was  oversold.  He 
took  advantage  of  this  situation  to  write  the  following  frank 
and  good-natured  letter  to  the  slow-paying  merchant.  It  was 
so  successful  that  he  says,  "I  have  used  it  several  times ;  m 
the  first  case  it  brought  in  the  cash  where  three  previous  re- 
quests had  failed.  In  every  instance  it  retained  good-will— 
in  fact  I  think  it  made  us  better  friends." 

Dear  Sir: 

We  have  just  received  your  order  No of  (date). 

To  be  perfectly  frank  with  you,  Mr ,  we  may  inform 

you  that  due  to  the  unusual  rush  of  business  this  spring  we  have  so 
many  orders  on  file  that  we  are  obliged  to  cancel  a  good  share  of  them 
and  concentrate  our  attention  on  filling  those  received  from  customers 
who  have  paid  their  bills  promptly,  or  who  give  us  reasonable  assur- 
ance that  they  will  do  so.  ,  .  .    j  ^         «  , 

We  are  enclosing  a  statement  of  your  account  which  dates  way 
back  to  (date).  You  surely  must  admit  that  we  have  been  very 
lenient  in  not  pressing  you  harder  than  we  have  for  payment,  and  will 
no  doubt  understand  that  the  present  classification  we  are  obliged  to 
make  in  filling  orders,  is  not  only  the  natural  course  to  follow,  but  is 
necessary  to  protect  the  interests  of  the  many  customers  who  have 
always  met  obligations  promptly. 

UjK)n  receipt  of  your  remittance  in  full  to  cover  your  long-past- 

74 


REFUSAL  TO  SHIP   GOODS 


75 


due  account,  or  at  least  a  substantial  portion  thereof,  we  shall  fill  the 
order  on  file,  and  see  to  it  that  you  receive  the  goods  in  due  time  to 
meet  your  requirements. 

We  trust  that  you  will  comply  with  our  wishes. 

Yours  truly. 

Simple  letters   dealing   with    similar   situations  are   the 
following: 

Gentlemen : 

We  are  in  receipt  of  your  recent  order  given  to  our  salesman, 
and  are  preparing  the  merchandise  for  shipment. 

We  find,  however,  on  referring  to  your  account,  that  invoices 

have  now  fallen  due  amounting  to  over  $ It  is  some  time 

since  we  have  had  a  payment  from  you,  and  before  forwarding  your 

order  we  request  that  you  favor  us  with  a  remittance  of  $ to 

apply  on  account. 

Very  truly  yours, 


Dear  Sir: 

We  have  written  you  at  length  in  connection  with  your  patronage 
and  particularly  your  order  of  June  14,  but  have  not  received  any 
reply.  If  there  is  no  way  by  which  we  can  arrange  for  the  filling  of 
this  order,  we  will  upon  your  suggestion  lay  it  aside. 

Yours  truly, 


Dear  Sir: 

We  wrote  you  on  June  27  regarding  your  account  and  our  in- 
ability to  proceed  with  the  shipment  of  your  pending  order  before  this 
balance  was  straightened  out. 

Of  course,  the  order  being  practically  all  for  Fourth  of  July,  you 
will  not  be  in  need  of  it  at  this  time.  However,  we  will  gladly  give 
attention  to  any  portion  of  it  that  you  desire  filled,  and  hope  to  have 
your  account  in  such  a  condition  as  to  admit  of  our  adding  promptly 
any  charges  that  may  cover  further  orders  you  may  send  us. 

Yours  truly, 


Dear  Sir: 

The  merchandise  which  you  selected  while  in  the  house  recently 

amounts  to  a  little  over  $ as  indicated  by  the  enclosed  invoices. 

We  find,  however,  on  referring  to  your  account,  that  you  are  now 


i  r 


•  ^ 


i' 


}' 


^5  NEW   COLLECTION   METHODS 

owing  us  $ and  before  shipping  your  purchases  it  will  be  neces- 
sary for  you  to  send  us  a  remittance  sufficient  to  bring  the  account 

down  to  $ ,  the  limit  agreed  upon.    Upon  receipt  of  your  check 

for  $ we  will  be  pleased  to  make  prompt  shipment  of  your 

recent  order. 

Very  truly  yours, 


REFUSAL  TO  SHIP   GOODS 


Dear  Sir:  ,   ,  ,  r  t 

We  earnestly  hope  that  you  will  acknowledge  our  letter  ot  June 
27  at  your  earliest  convenience,  as  we  are  anxious  to  dispose  in  some 
satisfactory  way  of  your  pending  order  of  June  16. 

Yours  truly, 


Dear  Sir :  ,        r  t  /: 

July  15,  the  date  set  for  the  shipment  of  your  order  of  June  lO, 
is  close  at  hand,  and  we  are  accordingly  very  desirous  of  receiving 
your  instructions,  as  we  have  suggested  in  our  former  letters. 

We  hope  you  will  have  the  kindness  to  write  us  before  the  date 
in  question,  and  we  hope  also  that  the  information  to  be  offered  will 
assist  in  our  reaching  a  definite  understanding  not  only  on  the  order 
now  under  consideration,  but  also  on  later  purchases. 

Yours  very  truly, 


Gentlemen : 

We  regret  very  much  the  need  of  directing  your  attention  to  the 
bills  on  your  account  that  are  delinquent,  but  inasmuch  as  they  stand 
in  the  way  of  our  executing  your  order  just  received,  we  have  no 
other  recourse. 

We  trust  that  your  remittance  for  the  items  of  May  31,  amount- 
ing to  $74.29,  may  reach  us  by  return  mail  so  that  your  present  order, 
which  is  already  packed,  may  be  shipped  at  once. 

Yours  very  truly, 


Dear  Sir: 

While  not  unwilling  to  add  the  charge  of  July  2  to  your  account, 
we  find  that  there  are  two  bills,  one  dated  April  5,  amounting  to  $17.13, 
and  the  other  dated  May  18,  amounting  to  $51.39,  which  have  not 
been  remitted  for. 

It  is  essential  within  our  rules  that  all  bills  be  paid  forty  days 
from  their  date  and  also  that  future  charges  be  withheld  from  accounts 


77 


that  are  delinquent.  We  trust  that  the  propriety  of  your  remitting 
for  these  items  will  appeal  to  you  to  the  end  that  the  present  order 
may  be  shipped  without  a  moment's  unnecessary  delay. 

Yours  very  truly. 


Dear  Sir : 

We  have  written  you  on  various  occasions  regarding  several 
orders  that  are  still  pending  in  our  files,  but  have  not  received  your 

reply. 

Please  understand  that  as  far  as  your  financial  worth  is  concerned 
we  should  be  glad  to  extend  your  credit  for  a  much  greater  sum  than 
is  represented  by  these  orders,  but  the  difference  on  the  account  to 
which  we  have  already  referred  seems  to  stand  in  the  way  of  their 
prompt  execution  and  we  should  be  pleased  to  have  your  explanation 
regarding  this  balance  as  soon  as  convenient. 

Yours  very  truly. 


Dear  Sir : 

We  are  in  receipt  of  your  postal  asking  us  to  hurry  shipment  of 
your  goods,  but  we  appear  to  be  without  response  to  our  letters  of 
June  14  and  20. 

We  shall  be  very  glad  to  proceed  with  the  shipment  if  you  will 
send  us  a  deposit  to  apply  on  the  order  and  give  us  permission  to  send 
draft  with  B-L  to  your  bank. 

Kindly  inform  us  by  return  mail  so  that  we  shall  know  how  to 
proceed. 

Yours  very  truly. 


Dear  Sir: 

We  are  in  receipt  of  your  letter  of  July  2  and  regret  you  did  not 
feel  able  to  send  us  a  remittance  to  enable  us  to  ship  the  order  which 
we  are  holding.  We  have  the  goods  all  packed  and  ready  to  go  to  you, 
and  if  you  do  not  expect  to  use  them  on  the  terms  suggested,  will  you 
kindly  inform  us  under  cover  of  the  enclosed  stamped  envelope  so  that 
we  can  return  them  to  stock  without  further  delay. 

You  appreciate  that  it  would  give  us  great  pleasure  to  ship  the 
goods  on  open  account,  but  in  view  of  the  delinquent  nature  of  your 
payments  for  some  time  past  and  the  fact  that  you  are  not  able  to 
promise  any  improvement,  we  do  not  feel  able  to  make  the  shipment 
in  this  way. 

We  shall  await  your  reply. 

Yours  very  truly. 


■ 

I 


7^ 


NEW   COLLECTION   METHODS 


REFUSAL  TO  SHIP   GOODS 


79 


A  Good-Natured  Appeal 

A  shoe  manufacturer  who  felt  the  need  of  warning  his 
careless  customer  wrote  a  cordial  and  good-natured  letter  re- 
selling the  goods  and  asking  payment  of  the  previous  invoice 
so  that  this  order  might  be  shipped  without  delay. 

Dear  Sir:  . 

Let  us  thank  you  for  that  nice  order  for  shoes  which  has  jusi 
come  in  through  Mr.  Wales.  Your  selection  shows  that  you  know 
what  good  values  those  boys'  Bluchers  are. 

But  we  find,  Mr.  Markel,  that  your  last  invoice  is  somewhat  over- 
due, and,  as  you  know,  our  policy  prevents  us  from  extending  further 
allowances  while  things  are  in  this  shape. 

No  doubt  you  have  let  this  matter  go  longer  than  you  intended, 
and  we  shall  expect  to  get  the  amount  our  bookkeeper  has  against 
you  in  the  course  of  the  next  week. 

We  shall  go  right  ahead  getting  the  shoes  ready  for  you,  and  will 
have  them  on  the  floor  for  shipment  in  ten  days'  time. 

We  wish  you  the  best  of  success  with  your  school  trade. 

Yours  very  truly, 

A  certain  jobber  had  tried  for  some  weeks  to  secure  a 
reply  to  his  collection  letters  and,  at  length,  on  asking  courte- 
ously for  an  explanation,  received  a  brief  letter  saying  that 
collections  were  poor  but  that  after  the  holiday  season  the 
merchant  would  be  able  to  pay  in  full.  As  he  had  already  ex- 
ceeded his  credit  by  a  considerable  sum,  it  was  not  thought 
safe  to  ship  the  additional  invoice  without  security;  moreover, 
the  manager  felt  that  by  proper  exertion  the  merchant  could 
collect  sufficient  of  his  own  outstanding  accounts  to  forward  a 
remittance.    Accordingly  he  wrote  as  follows : 

Dear  Sir: 

It  is  a  matter  of  great  regret  to  us  that  we  have  been  obliged  to 
act  unfavorably  upon  the  request  made  in  your  letter  of  November  20. 

While  we  appreciate  the  peculiar  circumstances  which  have  made 
It  difficult  for  you  to  reduce  your  outstanding  indebtedness  so  as  to 
bring  it  within  the  allowance  agreed  upon,  still  we  are  unable  to  allow 
the  present  order  to  go  forward  without  receiving  a  substantial  re- 
mittance, of  say  $150,  to  apply  on  past  accounts.    You  will  appreciate 


that  though  a  house  may  be  glad  to  extend  all  possible  favors,  it  must 
act  in  the  interests  of  all  its  customers  as  well  as  of  itself,  by  mam- 
taining  such  terms  as  are  consistent  with  the  safety  of  all  concerned. 
At  the  same  time,  we  understand  your  urgent  need  for  the  goods 
now  packed  and  awaiting  shipment,  and  we  believe  they  would  have 
such  a  ready  sale  that  you  would  be  justified  in  securing  the  amount 
needed.  It  is  difficult  to  secure  at  this  late  date  goods  which  will  give 
you  a  satisfactory  Christmas  trade,  and  this  trade,  of  course,  you  do 

not  wish  to  lose.  .,  ,    u    1. 

We  shall  hope  to  be  able  to  ship  the  goods,  and  shall  hold  them 
until  December  3.  In  the  meantime  we  assure  you  of  our  most  cordial 
good  wishes,  and  our  desire  to  be  of  service. 

Yours  very  truly. 

An  Ultimatum 

A  merchant  had  been  allowing  his  indebtedness  to  accu- 
mulate and  continued  to  send  in  his  orders  for  spring  goods. 
The  credit  manager  had  carefully  explained  to  him  the  im- 
possibility of  continuing  to  make  shipments  under  these 
conditions,  but  when  further  orders  were  received,  he  issued 
an  ultimatum,  hinting  that,  being  his  largest  creditor,  he 
was  in  a  position  to  make  serious  trouble  for  him,  and 
reminding  him  that  he  should  be  doing  a  good  business 
and  settling  his  bills. 

Gentlemen : 

We  are  just  in  receipt  of  your  orders  from  Mr.  Cunningham, 
one  for  neckwear  which  we  have  sent  to  the  department  to  be  man- 
ufactured, the  other  for  hosiery  which  we  note  is  marked  to  go  at 
once.  We  have  also  sent  this  to  the  department,  but  we  regret  we 
do  not  see  our  way  clear,  as  we  have  previously  indicated,  to  make 
further  shipments  until  after  the  past-due  account  has  been  materi- 
ally reduced  and  some  definite  arrangement  arrived  at  for  weekly 
payments. 

We  simply  cannot  ship  spring  goods  with  practically  the  entire 

fall  and  winter  account  unpaid.    We  wrote  you  a  very  long  letter 

in  regard  to  the  matter  on  April  13.     The  favorable  spring  weather, 

which  no  doubt  you  have  been  enjoying,  and  will  enjoy  for  the  next 

two  weeks,  ought  to  enable  you  to  make  a  decided  impression  upon 

your  indebtedness  to  us,  which  must  be  a  very  considerable  portion 

of  your  entire  indebtedness. 

Yours  very  truly. 


If 


80 


NEW    COLLECTION    METHODS 


REFUSAL   TO   SHIP   GOODS 


81 


Making  a  Fair  Proposal 

Another  credit  man  in  dealing  with  a  notoriously  slow- 
pay  and  shifty  customer  made  a  very  clear  statement  of 
what  should  be  the  attitude  of  a  merchant  who  was  unable 
to  pay  in  full.  Instead  of  being  content  merely  to  acknowl- 
edge the  arrangement,  he  enforced  the  moral  of  the  situa- 
tion, though  in  a  diplomatic  manner. 

Gentlemen : 

We  have  yours  of  July  i  addressed  to  the  writer,  and  thank 
you  for  it.  We  have  always  felt  where  any  merchant,  in  view  of 
conditions  over  which  he  has  no  control,  finds  himself  unable  to 
meet  all  of  his  bills  when  due,  that  he  should,  after  paymg  his 
actual  running  expenses,  divide  his  receipts  pro  rata  among  his 
creditors.  Not  only  is  this  fair  and  equitable,  but  it  is  good  business 
policy.  Every  house  then  knows  that  it  is  receiving  its  fair  share 
of  the  receipts,  which  is  all  any  house  can  ask,  and  they  should  be 
willing,  as  you  state,  and  you  will  find  them  very  generally  ready  to 
grant ^such  extension  as  the  conditions  make  necessary. 

It  will  be  perfectly  satisfactory  to  us  if  you  remit  us  each  week 
during  this  month,  in  accordance  with  your  business  and  other  obli- 
gations. 

Yours  very  truly. 

Proposing  Instalments 

The  credit  man  who  has  gone  direct  to  his  customer  for 
information  is  able  to  write  with  corresponding  frankness  on 
the  basis  of  the  data  secured,  a  thing  he  might  not  be  able 
to  do  if  the  information  had  come  from  outside  sources. 
The  specific  arrangement  laid  down  in  the  following  letter 
is  based,  as  the  reference  indicates,  on  the  customer's  own 
statement. 

Gentlemen : 

When  we  wrote  you  on  May  5,  acknowledging  your  check  for 
$100,  we  expressed  the  feeling  that,  in  view  of  the  amount  you 
were  owing  us,  which  represents,  according  to  your  statement,  all 
that  you  were  owing  from  last  year,  we  might  naturally  expect  an- 
other check  at  once  to  apply  on  the  account,  especially  as  sprmg 


trade  has  opened  up  and  you  should  be  doing,  even  with  all  condi- 
tions considered,  a  reasonably  satisfactory  business. 

May  we  not  expect  a  remittance  of  at  least  $250  to  apply  on 
your  account,  to  reach  us  by  Monday,  May  17,  and  a  remittance  for 
at  least  $100  a  week  each  following  Monday  thereafter  until  the  ac- 
count has  been  fully  paid?  Even  this  arrangement  would  take  you 
six  weeks,  or  until  the  1st  of  July,  to  take  up  bills  which  were 
due  and  payable  last  year. 

Yours  very  truly, 

A  Plain  Statement 

In  a  similar  situation  the  credit  manager  made  a  strong 
appeal  to  fair  play,  as  the  statement  disclosed  that  the  cus- 
tomer had  taken  a  shameful  advantage  of  his  leniency  on 
the  ground  that  being  his  largest  creditor  this  house  would 
not  deal  severely  with  him.  Further  shipments  for  spring 
trade  were  promptly  held  up  until  the  fall  invoices  had  been 
settled. 

Gentlemen : 

While  we  thank  you  for  your  statement  just  received,  which 
we  note  to  be  under  date  of  April  30,  it  is  with  most  sincere  regret 
that  we  note  ours  are  the  only  bills  of  last  year  that  are  unpaid,  and 
according  to  our  books  your  bills  with  us  run  back  to  last  September 
and  October  and  November. 

While  we  desire  to  have  our  customers  feel  that  we  are  most 
willing  to  co-operate  with  them  at  all  times,  we  would  hardly  ex- 
pect them  to  take  advantage  of  our  consideration.  We  therefore 
feel  that  before  making  shipment  of  the  spring  goods,  our  past-due 
account  should  be  taken  up,  especially  that  portion  of  it  for  last 
year,  which  approximately  amounts  to  $611,  statement  of  which  has 
been  sent  you. 

On  receipt  of  your  remittance  for  this  amount  we  will  be  glad 
to  forward  the  goods  on  order  for  spring. 

Yours  very  truly, 

A  Last  Appeal 

After  receiving  the  above  letter  the  customer  declared 
that  payment  was  impossible  at  the  time  and  that  he  should 
be  obliged  to  buy  his  spring  goods  elsewhere.    The  manager 


g2  NEW   COLLECTION   METHODS 

might  have  based  his  response  entirely  on  fear.  He  could 
have  gotten  this  merchant  into  serious  trouble  by  taking  him 
at  his  word  and  cancelling  his  order.  He  could  have  dealt 
a  permanent  blow  to  his  credit  standing  by  making  his  con- 
dition public.  But  long  experience  had  taught  him  that 
such  men  could  be  brought  to  terms  and  converted  into 
good  and  valuable  customers;  besides,  he  knew  that  the 
retail  merchant  does  not  always  consider  very  carefully 
what  he  writes  in  answer  to  collection  letters. 

Consequently  he  based  his  entire  appeal  upon  fair  play 
while  his  last  sentence  did  no  more  than  hint  at  possible  can- 
cellation of  the  order. 

Gentlemen:  _,       „      _,      ,     , 

We  must  say  that  we  received  yours  of  May  8  with  check 
for  $      ...  with  very  sincere  regret.    It  would  seen,  to  us  the  fact 

vou  are  now  owing  us  $ on  last  fall's  bills  past-due,  would 

merit  a  better  treatment  than  to  have  you  feel  that,  because  we  are 
not  in  a  position  to  ship  goods  for  spring  until  your  P^f  d^e  ^c<=°»"! 
has  been  very  materially  reduced,  you  should  be  * °'".V° 'Z/""' 
goods  elsewhere.  It  would  seem  to  us  that  you  ought  *«> /«•  y°" 
are  under  obligation  to  buy  your  merchandise  from  us,  and  arrange 
to  pay  for  what  you  buy  in  addition  to  reducing  your  past-due  ac- 

count  as  fast  as  possible.  ,  ^  ,  ,    . 

We  cannot  look  at  it  in  any  way  but  that  you  should  buy  what  you 
need  from  us,  paying  for  it,  and  making  weekly  payments  of  $. . .  .^. 
on  the  past-due  account  until  you  have  it  m  such  shape  that  we 
shall  again  be  able  to  go  along  as  we  have  done  in  the  past. 

We  have  your  spring  orders  still  on  our  files  awaiting  some 
disposition.  We  believe  the  above  policy  is  due  not  only  us  but 
yourself  You  certainly  ought  not  to  blame  us  for  the  fact  that  you 
have  permitted  practically  your  entire  fall  bills  to  run  until  springy 
We  are  quite  at  a  loss  to  understand  why  you  should  make  us  the 
losers  for  having  been  generous  and  so  considerate  with  you  m  re- 
gard to  vour  past-due  account.  ,    ^  i 

We  wait  your  pleasure,  and  ask  you  to  advise  us  what  conclu- 
sion you  come  to  so  that  we  shall  know  what  disposition  to  make  ot 

the  eoods  on  order. 

Yours  very  truly. 


CHAPTER    XI 

REQUEST    FOR    CREDIT    STATEMENT 

Where  the  Customer  Refuses  Information 

"You  are  surprised  at  my  leniency,"  said  the  credit 
manager  of  a  certain  jobber,  "and  all  the  more  so  when 
you  found  me  writing  long  letters  to  'bring  a  man  to  time' 
who  was  incorporated  for  only  $5,ocx).  Now  this  particular 
retailer  is  hot-headed,  and  he  is  none  too  good  a  business 
man  as  the  state  of  his  accounts  indicate.  But  the  size  of 
his  account  never  makes  any  difference  with  the  fair  treat- 
ment I  give  a  customer.  Moreover,  he  has  many  years  of 
business  life  before  him.  Suppose  that  at  the  expense  of 
the  little  time  I  and  my  assistants  take  in  writing  him,  or 
the  comparatively  small  amount  of  money  we  lose  by  carry- 
ing him  so  generously  on  our  books,  we  can  bring  about  a 
change  in  his  personal  attitude  and  method  of  doing  business. 
If  we  take  an  attitude  of  opposition  we  shall  certainly  not 
succeed,  and  then  of  course  there  is  the  chance  that  he 
might  fail,  in  which  case  we  should  lose  still  more  heavily. 
If  we  convert  him,  he  becomes  a  source  of  good  business 
to  us,  and  every  man  who  becomes  a  better  merchant  helps 
to  stabilize  the  general  mercantile  condition.  Such  letters 
as  these  look  a  long  way  into  the  future." 

Two  letters  from  the  correspondence  referred  to  are 
given  below.  In  the  first,  it  will  be  noticed  that  the  creditor 
had  asked  for  a  remittance  and  a  property  statement,  as  a 
condition  of  shipping  a  large  spring  order.  The  merchant 
paid  his  bill  but  flatly  refused  to  give  the  information  asked, 
saying  he  would  prefer  to  cancel  his  order.  The  manager 
based  his  entire  appeal  on  the  customer's  sense  of  justice. 

83 


84 


NEW    COLLECTION    METHODS 


REQUEST   FOR   CREDIT   STATEMENT 


85 


Dear  Sir: 

It  is  with  the  most  sincere  regret  that  we  received  yours  of  April 
6,  and  note  the  spirit  in  which  it  was  written.  You  say  that  you 
are  surprised  at  our  attitude  towards  you  as  you  certainly  thought 
we  were  good  enough  friends  to  allow  you  to  impose  upon  us  for 
the  small  amount  you  are  owing.  Does  it  occur  to  you  that  that 
is  not  quite  the  kind  of  a  letter  that  should  be  written  to  a  concern 
to  whom  you  are  remitting  at  that  time  on  payment  of  bills  due  last 
fall? 

Would  our  attitude  toward  you,  during  last  season,  when  your 
spring  bills  were  not  balanced  until  October,  and  during  this  sea- 
son when  your  fall  bills  were  not  paid  until  April,  indicate  that  we 
have  been  helpful  and  co-operated  with  you,  or  does  it  indicate  that 
we  are  subject  to  criticism? 

We  will  of  course  comply  with  your  request  and  cancel  the 
goods  on  order,  but  we  do  so  with  the  greatest  regret,  first,  because 
we  want  to  continue  to  do  business  with  you,  and  second,  because  we 
regret  that  you  do  not  feel  that  our  consideration  justifies  our  having 
the  information  upon  our  files  which  we  requested,  and  to  which 
evidently  you  take  exception,  as  you  certainly  cannot  take  exception 
to  our  treatment  of  your  account,  either  last  season  or  for  the  previ- 
ous season. 

Our  recollection  is  that  you  are  incorporated  for  $5,000.  You 
have  never  made  us  a  statement  of  your  affairs  since  you  first 
started  in  business,  some  three  years  ago.  It  has  been  our  custom 
with  all  of  the  merchants  trading  with  us  to  ask  for  a  statement 
from  time  to  time,  as  we  feel  that  by  so  doing  we  are  in  a  position 
to  keep  in  touch  with  them  and  be  of  assistance  to  them.  We  believe 
a  second  consideration  of  our  treatment  will  unquestionably  lead 
you  to  take  action  that  will  permit  us  to  ship  spring  goods. 

Yours  very  truly, 

The  hot-headed  customer  replied,  charging  the  manager 
with  having  insinuated  certain  charges  against  him. 
Although  it  was  apparent  that  no  fair  reading  of  his  letter 
was  open  to  such  an  interpretation,  the  manager  wrote  a 
painstaking  and  courteous  reply,  using  the  occasion  to  "sell 
credit." 

Dear  Sir: 

I  am  seriously  concerned  with  regard  to  that  part  of  your 
note  of  April  26  which  is  underlined,  namely,  that  "you  insinuate 
things  that  we  would  never  be  guilty  of  doing." 


We  certainly  appreciate  your  business.  We  believe  our  treat- 
ment of  your  account  up  to  now  indicates  this,  and  we  are  sincerely 
quite  at  loss  to  understand  what  you  take  exception  to  in  our  present 
position.  It  would  hardly  seem  to  us  that  you  could  object  to  our 
desiring  to  have  some  definite  understanding  with  reference  to  the 
payment  of  last  fall's  bills  before  shipping  the  goods  on  order  for 
spring;  nor  do  we  feel  you  could  take  exception  to  our  having  asked 
for  a  statement  of  your  affairs.  We  have  no  hesitancy  in  asking 
any  concern  with  whom  we  do  business  for  such  information.  We 
have  been  in  business  fifty-three  years;  we  have  forwarded  state- 
ments at  the  end  of  each  inventory,  twice  a  year,  to  the  principal 
agencies  and  to  our  banks;  and  anyone  with  whom  we  are  doing 
business  even  today  is  in  a  position  to  secure  exact  figures  with 
regard  to  our  affairs. 

Entirely  independent  of  your  reinstating  your  order  with  us, 
which  we  have  regretfully  canceled,  we  would  very  much  appreciate 
your  advising  us  just  what  part  of  our  letter  you  took  exception  to. 
As  indicated  in  one  of  them,  you  are  an  incorporated  company. 
As  we  understand  it,  you  are  incorporated  for  $5,000.  While  the 
condition  of  your  affairs  may  be  in  every  way  satisfactory,  we  have 
no  means  of  knowing  it.  The  responsibility  rests  entirely  on  the 
condition  of  your  business,  as  there  is  no  personal  responsibility  in 
an  incorporated  business. 

You  say  that  during  all  the  time  we  have  been  doing  business 
with  you  we  should  have  satisfied  ourselves  as  to  the  moral  risk. 
Never  for  one  moment  has  there  been  any  question  of  the  moral 
risk  in  our  mind,  but  if  you  could  have  our  experience  for  only 
a  short  time,  you  would  have  found  out  very  conclusively  that  honest 
people  fail  in  business,  and  fail  to  succeed  in  business,  and  there 
must  be  some  basis  for  credit  other  than  confidence  in  the  moral 
risk,  although  that  is  the  actual  basis  of  all  credit. 

You  state  you  have  splendid  backing,  with  reference  to  which 
we  have  no  knowledge  whatever.  Your  position,  that  you  do  not 
make  statements  to  anyone,  is  quite  unusual  in  these  days,  when 
every  merchant  recognizes  the  right  of  the  extender  of  credit, 
whether  it  is  his  banker,  or  the  houses  with  whom  he  is  dealing,  to 
have  definite  information  that  will  enable  the  goods  to  be  shipped 
understandingly.  This  matter  of  doing  business  is  not  only  one  of 
profit,  but  should  be  one  of  mutual  confidence.  We  believe  we  have 
the  same  right  to  expect  your  confidence  as  you  have  to  expect  ours. 
We  believe  we  have  as  much  right  to  know  the  condition  of  a 
business,  to  which  we  are  shipping  goods,  as  the  dealer,  on  his  part, 
has  to  expect  us  to  demonstrate  our  confidence  in  his  condition  and 
his  intentions. 


f 


86 


NEW  COLLECTION  METHODS 


REQUEST  FOR  CREDIT  STATEMENT 


87 


II 


The  confidence  must  be  mutual.  We  certainly  have  demon- 
strated our  confidence,  when  we  remind  you  that  your  remittance 
of  April  8  took  up  the  bills  that  were  due  last  fall,  and  we  are  entirely 
at  a  loss  to  understand  why  you,  on  your  part,  should  not  show  the 
same  confidence  in  us,  by  being  willing  to  give  us  the  condition  of 
your  business,  which  should  be  the  basis  for  credit  with  us. 

As  we  stated  in  the  first  place,  entirely  independent  of  whether 
we  ship  you  goods  for  this  spring  or  not,  we  would  like  to  have  you 
advise  us  what  things  were  insinuated,  or  to  what  part  of  our  letter 
you  felt  you  were  justified  in  taking  exception. 

Yours  very  truly. 

Request  for  Credit  Information 

When  such  patient,  friendly  reasoning  has  altered  a 
merchant's  point  of  view  with  a  resulting  increase  in  his 
prosperity,  the  credit  manager  may  well  be  encouraged  for 
his  future  endeavors.  An  instance  is  given  by  an  official 
of  a  well-known  house,  which  resulted  happily  for  all  con- 
cerned. The  manager  had  received  private  information  that 
the  customer's  affairs  were  approaching  uncomfortably  close 
to  the  danger  point.  Not  wishing  to  reveal  the  source  of 
his  information,  he  wrote  an  urbane  letter  direct,  enclosing 
a  blank  form  of  statement  to  be  filled  out  by  the  doubtful 
customer. 

Gentlemen : 

Our  credit  files  show  that  you  take  your  inventory  usually  about 
the  middle  of  February,  and  as  it  is  customary  with  us  to  revise 
our  credit  information  from  time  to  time,  and  as  we  have  had  no 
recent  information  from  you,  we  take  the  liberty  of  asking  you  if 
it  would  be  convenient  to  place  us  in  touch  with  your  present  con- 
dition. 

We  trust  it  will  be  your  pleasure  to  send  us  this  information  on 
the  blank  we  enclose  (or  any  other  form  you  desire  will  be  equally 
satisfactory).  We  hope  the  outlook  is  favorable  in  your  section 
for  a  prosperous  spring  and  summer  business. 

Yours  very  truly. 

As  he  expected,  he  struck  fire;  the  customer  indignantly 
refused  to  make  a  statement  of  any  kind. 


Gentlemen : 

We  are  in  receipt  of  your  letter  of  February  16,  and  would 
like  to  know  where  you  get  your  information  from,  stating  that  we 
take  our  inventory  in  the  middle  of  February.  Beg  to  advise  you, 
that  we  take  our  inventory  January  i  and  July  i,  and  we  cannot  see 
why  we  are  under  obligation  to  you  to  give  you  a  statement  of  our 
affairs,  as  we  make  them  to  Bradstreet's  and  Dun's,  and  if  they  are 
not  satisfied  as  to  our  rating  we  certainly  do  not  want  you  to 
take  any  chances  on  us.  This  is  the  first  mercantile  house  that  has 
ever  asked  this  of  us.  While  we  are  not  at  all  alarmed  to  make 
any  statement  at  any  time,  yet  we  are  not  receiving  any  amount  of 
credit  of  you  that  should  justify  you  in  requesting  a  statement. 

If  our  account  is  not  satisfactory  to  you,  just  kindly  let  us  know 
at  once  so  we  can  arrange  without  inconveniencing  you  or  us. 

We  regret  that  we  cannot  comply  with  your  wishes. 

Yours  respectfully. 

The  creditor's  reply  justified  in  masterly  fashion  his 
practice  of  going  direct  to  the  customer  for  information, 
and  suggested  that  the  closing  of  the  account  would  be 
entirely  satisfactory  to  him. 

Gentlemen : 

We  have  your  letter  of  February  21,  and  regret  you  do  not 
feel  disposed  to  send  us  the  statement  requested.  The  reason  we 
wrote  you  direct  was  that  we  did  not  find  any  1918  statement  in  the 
agencies,  whose  report  we  have  before  us,  the  last  statement  sent 
us  in  response  to  our  recent  request  being  that  of  February,  1917. 

The  reason  we  stated  that  it  was  our  understanding  that  you 
took  your  inventory  the  middle  of  February  was  that  in  your  1917 
statement  to  the  agencies,  they  stated  the  condition  was  given  them 
as  of  February  14,  1917.  The  reason  we  felt  the  necessity  of  recent 
figures  was  that  not  only  has  your  small  account  with  us  been  slow 
but  from  reports  we  have  before  us,  we  note  you  have  been  slow  in 
many  other  quarters.  It  is  not,  of  course,  necessary  that  you  should 
give  us  the  statement  unless  you  desire  to  do  so.  When  we  want 
definite  information  we  always  feel  perfectly  justified  in  going  direct 
to  the  customers ;  they  certainly  know  more  about  their  business  than 
anyone  else,  and  we  did  so  in  this  case  because  we  did  not  find  it  in 
the  agency  sources.  We  have  always  felt  the  more  closely  we  are  in 
touch  with  our  customers  and  their  affairs  the  better  able  are  we 
to  serve  them,  and  we  make  no  apology  in  asking  any  concern  to 
place  us  in  touch  with  the  condition  of  their  business. 


88 


NEW   COLLECTION   METHODS 


REQUEST   FOR  CREDIT   STATEMENT 


89 


We  would  not  feel  justified,  under  the  circumstances,  in  for- 
warding the  goods  without  the  statement.  We  will  again  write  the 
agencies  and  ask  if  they  have  your  recent  statement  on  file,  and  if 
they  have,  ask  that  they  forward  it  to  us.  When  we  receive  it  we 
will  be  pleased  to  give  it  our  careful  consideration  and  advise 
you  whether  we  feel  justified  in  shipping  the  order  we  have  upon  our 
files  for  spring.  In  the  meantime,  should  you  prefer  cancellation 
of  the  order,  it  will  be  entirely  satisfactory  to  us. 

We  await  your  pleasure  in  the  matter. 

Yours  very  truly. 

This  was  just  the  firm  hand  which  the  customer  needed. 
He  had  in  the  meantime  cooled  off  and  realized  how  heavy 
was  his  moral  obligation  to  the  wholesaler  who  had  supplied 
him  with  goods  and  granted  him  courteous  treatment  over 
a  period  of  years.  His  response  shows  him  in  a  chastened 
frame  of  mind. 

Gentlemen : 

We  are  in  receipt  of  your  letter  of  February  24.  After  reading 
it  over  we  had  to  look  up  our  file  to  find  the  letter  that  I  had  written 
you  on  February  21.  I  can  assure  you  that  I  felt  very  much 
chagrined,  as  I  must  have  been  out  of  sorts  when  I  wrote  this  letter. 
This  excuses  no  one,  but  I  must  apologize  for  writing  this  letter 
as  it  sounds  very  sarcastic  indeed.  I  do  not  feel  any  way  insulted  over 
your  letter  as  it  is  diplomatic  from  a  business  standpoint. 

I  have  gone  over  our  files  and  find  we  have  not  sent  in  our 
report  to  Bradstreet's  and  Dun's,  as  I  expected  had  been  done,  but 
they  will  go  forward  today,  and  I  am  enclosing  you  a  copy  of  same. 

You  refer  to  our  account;  we  admit  that  we  were  a  little  slow 
with  you,  as  the  overgrowth  of  our  business  has  kept  us  from  meet- 
ing these  accounts  as  promptly  as  we  should,  but  we  trust  it  has 
not  inconvenienced  you  to  a  great  extent.  I  should  have  written 
you  regarding  it  after  receiving  your  statement,  but  neglected  to 
do  so. 

We  trust  you  will  overlook  this  letter  that  we  wrote  you  on 
the  21  St  and  await  your  reply. 

Yours  respectfully, 

But  this  was  happily  not  the  end  to  the  affair.  The 
merchant  followed  up  his  letter  with  a  visit  in  person 
accompanied  by  his  partner,  and  the  resulting  interview  gave 


the  manager  a  chance  to  go  thoroughly  into  their  affairs 
and  to  give  financial  advice  which  eventually  was  the  means 
of  putting  the  customer  on  his  feet.  His  letter  of  gratitude 
closes  this  interesting  series. 

Dear  Sir: 

It  is  certainly  a  pleasure  for  me  to  write  you  this  letter,  as  I 
wish  to  inform  you,  that  through  the  very  meeting  that  you,  Mr. 
Smith,  and  I  had  in  your  office,  and  the  time  that  you  gave  up  while 
in  your  city,  I  have  found  out  how  to  get  my  business  properly 
financed.  Through  the  advice  that  you  had  given  us,  coming  home 
and  taking  up  our  business  thoroughly,  I  was  enabled  to  take  it  up 
with  my  directors  and  my  bank,  and  they  have  furnished  me  ample 
means  to  pay  off  all  my  creditors  and  placed  me  on  a  strictly  dis- 
counting basis.  . 

This  meeting  that  we  had  I  shall  never  forget.  We  will  be  m 
your  city  before  long  taking  up  the  subject  of  how  to  attend  to  our 
future  buying.  We  trust  you  will  answer  that  you  will  allow  us  a 
little  more  of  your  time,  when  we  visit  you. 

It  has  taken  me  seven  years  to  get  this  business  financed 
and  I  can  assure  you  that  I  have  got  a  load  off  my  shoulders 
now.  I  want  to  make  it  a  strictly  money-making  business,  and 
any  favor  you  can  show  us  along  this  line  we  will  try  to  reciprocate, 
by  giving  your  house  as  much  of  the  business  as  possible. 

Kindly  let  me  hear  from  you. 

Yours  respectfully. 


CHAPTER    XII 

EFFECTIVE  COLLECTION  PROPOSALS 


Cutting  Down  the  Order 

Another  option  of  the  credit  manager  who  wants  to  ship 
his  goods  is  to  cut  down  the  size  of  the  order.  This  can 
be  handled  in  such  a  way  as  to  give  no  disadvantage  to  the 
customer  while  protecting  the  creditor.  The  manager  may 
suggest  that  the  order  be  broken  up  in  several  shipments  to 
be  sent  forward  as  the  customer  may  require.  This  enables 
him  to  keep  his  capital  employed,  while  at  the  same  time 
it  enables  the  manager  to  hold  up  further  shipment  in  case 
payment  is  not  forthcoming. 

The  following  series  of  letters  shows  a  remarkably  con- 
structive attitude.  It  is  an  unusual  example  of  the  credit 
man  at  his  best,  as  a  seller  of  credit. 

Dear  Sir: 

We  are  taking  up  the  shipment  of  fall  goods,  and  as  we  desire 
to  keep  in  touch  with  you  and  your  affairs  we  would  like  to  have 
you  send  us,  if  you  will,  a  memorandum  showing  the  total  amount 
of  your  purchases  for  fall. 

While  the  addition  of  recent  capital  will,  of  course,  be  of  material 
assistance,  and  while  we  recognize  that  you  must  order  more  liber- 
ally in  advance,  in  view  of  your  distance  from  this  market,  at  the 
same  time  we  hope  that  you  will  not  make  the  mistake  that  is  so 
frequent  among  merchants  of  ordering  too  largely  in  advance. 
Then,  if  conditions  are  not  as  favorable  as  you  anticipate  you  will 
not  be  overstocked  at  the  end  of  the  season  with  a  consequent  too 
large  indebtedness. 

We  believe  a  liberal  purchase  for  fall  would  be  not  to  exceed 
50  per  cent  of  what  you  have  full  reason  to  feel  will  be  your  sales 
for  the  fall  and  winter  season;  for  instance,  if  you  expected  to  do 
$10,000,  on  which  you  would  look  for  a  profit  of  $4,000,  the  goods 
sold  during  the  entire  fall  and  winter  season  would  cost  you  $6,000. 

90 


EFFECTIVE  COLLECTION   PROPOSALS 


91 


It  would  seem  to  us  that  at  the  most  an  advance  purchase  of  $3,000 
would  be  as  much  as  you  would  be  justified  in  makmg. 

We  thank  you  for  this  information  and  wish  you  every  suc- 
cess in  the  future.  ,,  ^    . 
^                                                   Yours  very  truly, 


Dear  Sir:  ^  a  r\      ^^ 

We  acknowledge  with  thanks  your  letter  of  August  3.  One  or 
two  inquiries  about  you  have  come  in  from  our  neighbors,  which 
we  have  been  pleased  to  answer ;  we  feel  there  is  a  most  favorable 
disposition  toward  you,  evidenced  not  only  because  of  your  char- 
acter and  the  feeling  on  the  part  of  all  that  you  are  willing  to  work 
hard  and  be  economical,  but  also  because  of  your  willingness  to 
give  information  freely  and  frankly  in  regard  to  your  affairs.  It 
is  a  pleasure  to  indorse  your  position  in  this  respect. 

Now,  in  regard  to  the  shipment  of  fall  goods :  while  we  should 
like  to  start  shipment  when  you  will  need  the  goods,  at  the  same 
time  we  feel  that  our  existing  past-due  account  should  be,  if  not 
entirely  paid,  at  least  very  materially  reduced  before  we  are  expected 
to  ship.  We  are,  as  you  will  note  by  our  recent  letters,  quite  con- 
cerned as  to  whether  you  have  not  bought  more  in  advance  for  fall 
than  you  should,  but  as  we  understand  that  you  have  arranged  for 
these  goods  in  different  shipments  and  can,  if  necessary,  cancel  the 
later  shipments,  we  see  that  you  have  a  chance  of  recovery  if  you 
find  that  the  orders  placed  are  in  excess  of  what  you  will  need. 

We  hope  that  you  will  be  able  to  give  us  a  payment  to  apply 
on  our  past-due  account,  and  outline  some  definite  plan  for  weekly 
payments  to  apply  on  the  balance,  so  that  the  entire  amount  or 
practically  all  of  it  may  be  taken  up  before  you  are  in  need  of  fall 

goods. 

Let  us  assure  you  of  our  desire  to  co-operate  with  you  m  every 

way  we  consistently  can. 

Yours  very  truly. 


Dear  Sir:  .  „       , 

After  we  had  O  K'd  for  shipment  your  fall  orders  amounting 
to  about  $1,075,  we  received  yesterday  your  order  for  shirts  from 
Mr.  Taylor  for  immediate  shipment,  amounting  to  $650. 

We  regret  that  it  is  quite  beyond  our  ability  to  extend  a  credit 
of  this  amount,  making  practically  $1,700,  as  you  are  now  owing 
us  $1,092.  That  was  the  reason  we  wrote  you  as  we  did,  asking 
you  to  put  us  in  touch  with  the  exact  amount  of  your  advance  fall 
purchases  and  advising  you  to  cut  them  down,  showing  you  were 


♦1 


i    ». 


"S 


92 


NEW   COLLECTION   METHODS 


not  justified  in  buying  too  largely  in  advance,  and  that  you  should 
not  anticipate  your  sales  for  more  than  four  months  at  the  most. 

With  your  sales  of  $20,000  a  year  and  your  profits  of  approxi- 
mately $5,000 — they  may  be  a  little  more  than  that — the  goods  you 
would  sell  in  a  year  would  cost  you  $15,000.  Possibly  your  last  six 
months  will  be  the  best  and  the  goods  you  would  sell  would  cost  you 
$8,000;  but  this  would  be  for  the  entire  season  from  the  1st  of  Sep- 
tember until  about  the  ist  of  March — six  months — and  $4,000  would 
in  our  judgment  be  very  liberal  advance  purchases.  You  informed 
us  that  you  had  cut  down  your  advance  purchases  to  this  amount 
and  this  included,  of  course,  the  amount  purchased  from  us.  We 
are  now  in  receipt  of  this  additional  shirt  order  which,  though  we 
presume  you  need  it,  at  the  same  time  we  are  unable  to  forward, 
as  we  feel  the  amount  of  credit  we  are  already  extending  is  very  lib- 
eral and  really  more  than  we  are  justified  in  giving. 

You  are  still  owing  us  $108  upon  an  invoice  of  June  10,  due 
July  10,  and  now  two  months  past  due. 

We  should  be  pleased  to  hold  the  order  and  to  make  any 
arrangements  for  its  shipment  that  you  suggest 

Yours  very  truly, 


Dear  Sir: 

It  was  a  pleasure  to  receive  your  letter  of  September  14,  and 
again  we  thank  you  for  the  spirit  shown  in  writing  us.  It  is  not 
that  we  lack  confidence  in  either  your  ability  or  your  honesty,  but 
we  feel  that  we  are  already  extending  a  credit  fully  as  large  as  we 
are  justified  in  doing,  taking  all  things  into  consideration. 

In  fact,  there  is  no  justification  for  the  amount  of  credit  we 
are  extending  you  now  on  a  business  basis.  It  is  only  because  we 
find  you  concentrating  your  business  with  a  few  houses  and  the  right 
kind  of  houses,  and  because  you  show  a  willingness  to  abide  by 
their  judgment  and  give  them  information  in  regard  to  your  affairs, 
that  we  have  been  willing  to  extend  such  an  amount  of  credit;  this 
amount  we  feel  is  very  liberal. 

We  shall  be  pleased  to  receive  the  remittance  to  take  up  the 
bills  past  due,  which  we  note  you  intend  sending  next  week. 

We  shall  be  very  glad  to  hear  from  you  regarding  shirts  or 
any  other  goods  you  need  at  any  time,  and  you  may  always  expect 
careful  and  serious  consideration  on  our  part.  We  believe,  how- 
ever, that  with  the  amount  you  have  from  us  now  and  with  orders 
from  time  to  time  supplementing  your  stocks,  it  ought  to  be  possible 
for  you  to  get  along  during  the  season. 

Yours  very  truly. 


EFFECTIVE  COLLECTION   PROPOSALS 


93 


Turning  Down  an  Old  Customer 

The  regular  financial  statement  is  the  barometer  of  the 
merchant's  business.  When  it  shows  that  a  storm  is  approach- 
ing, the  credit  manager  to  whom  it  is  submitted  will  begin 
skilfully  to  reduce  the  amount  of  his  business  with  the  cus- 
tomer so  as  to  be  entirely  "under  cover"  when  the  storm  bursts. 
One  manager  who  had  been  proceeding  conservatively  with 
regard  to  a  certain  customer  received  a  letter  from  him  con- 
taining his  property  statement  and  asking  why  his  salesman 
had  not  called.  The  manager  decided  to  write  frankly  and 
show  the  merchant  whither  he  was  drifting. 

Dear  Sir: 

Thank  you  for  your  financial  statement  of  January  20.  Under 
the  laws  of  your  state,  so  much  of  the  value  of  the  homestead  listed 
would  be  exempt,  that  it  can  hardly  be  regarded  as  a  basis  for  credit 
to  your  firm.  Leaving  it  out  of  consideration,  your  assets  appear 
to  amount  to  $ ,  against  which  there  are  Habilities  aggregat- 
ing $ ,  the  net  surplus  being  $ 

Your  report showed  an  indebtedness  of  $ against 

a  business  investment  of  $ ,  leaving  a  net  worth  of  $ 

The   residence   was   not   included   in   this   calculation.     The   report 

of    showed  business   assets  $ ,   liabilities   $ ,   net 

worth  $ The  report  of showed  business  assets  $ , 

liabilities  $ ,  net  worth  $ 

A  comparison  of  the  figures  just  received  with  those  submitted 
in  the  earlier  reports  indicates  a  decided  retrogression  in  your 
financial  affairs.  Not  only  does  your  surplus  seem  to  be  smaller, 
but  your  liabilities  are  very  much  heavier  in  proportion  to  your 
resources.  In  fact,  it  seems  to  us  that  your  present  indebtedness 
is  dangerously  large  as  compared  with  your  business  assets,  so  that 
we  are  forced  to  the  conclusion  that  you  are  rapidly  drifting  in 
the  wrong  direction,  and  that  unless  some  radical  changes  are 
wrought  in  your  financial  and  business  policies,  you  cannot  in  the 
end  avoid  serious  embarrassment. 

Being  fearful  of  giving  offense,  we  have  hesitated  thus  frankly 
to  express  our  apprehensions  to  you,  but  you  have  been  patronizing 
us  for  some  time  and  we  earnestly  desire  your  success,  so  that  at 
the  risk  of  being  criticized  for  offering  gratuitous  advice,  we  are 
giving  you  the  benefit  of  our  observation  and  experience  in  such 


94 


NEW    COLLECTION   METHODS 


EFFECTIVE  COLLECTION  PROPOSALS 


95 


I  's 


i    I! 


matters.    We  trust  you  will  take  these  suggestions  in  good  part  and 
weigh  them  carefully. 

Until  there  has  been  a  marked  reduction  in  the  amount  of  your 
indebtedness,  we  cannot,  we  regret  to  say,  continue  to  solicit  your 
orders  on  the  regulation  credit  terms.  We  shall  hope,  however, 
to  hear  soon  that  you  have  succeeded  in  bringing  about  such  im- 
provements in  your  financial  matters  as  to  relieve  you  from  all 
danger  of  embarrassment. 

We  shall  be  glad  to  give  you  service  in  any  way  which  lies 
open  to  us. 

Very  truly  yours, 

Following  Up  Part  Payments 

When  a  delinquent  customer  has  made  the  plea  of 
inability  to  meet  his  total  indebtedness  and  an  arrangement 
for  weekly  payments  or  settlement  on  some  other  basis  has 
been  arrived  at,  the  credit  manager  must  follow  up  this  plan 
carefully  to  make  sure  that  promises  are  being  kept.  The 
courtesy  and  leniency  which  has  permitted  the  agreement 
can  be  made  the  basis  for  a  strong  appeal  to  justice  and 
fair  play,  while  the  debtor  can  also  be  reminded  of  previous 
occasions  on  which  he  has  been  well  treated  by  the  credit 
manager. 

Gentlemen : 

Our  Bookkeeping  Department  has  again  called  our  attention 
to  the  balance  due  on  spring  bills,  most  of  which  matured  May  i, 
and  the  further  fact  that  during  the  month  of  May  we  received 
but  $236.30,  and  so  far  this  month  $200.  We  were  under  the  im- 
pression from  your  letter  of  May  17  that  you  would  send  us  weekly 
remittances. 

We  have  had  no  money  from  you  for  nearly  three  weeks,  and 
you  will  please  call  to  mind  that  it  was  very  distinctly  understood 
that  our  spring  bills  were  to  be  paid  promptly.  We  trust,  therefore, 
it  will  be  your  pleasure  to  send  us  a  remittance  to  cover  at  least 
one-half  the  amount  due  ($456.40)  during  the  coming  week,  that  is, 
the  week  of  June  21,  and  to  send  the  balance  the  week  following, 
the  week  of  Jime  28.  We  consider  this  a  very  liberal  suggestion 
and  will  expect  your  prompt  compliance  therewith. 

Yours  very  truly. 


In  another  similar  case  the  manager  assumed  that  a 
check  may  have  already  been  sent,  and  in  the  latter  part 
of  the  letter  implies  that  the  account  may  have  been  over- 
looked by  subordinates. 

Gentlemen : 

Upon  referring  to  your  account  at  this  time  we  note  we  have 
not  received  a  remittance  from  you  since  the  $250  which  reached 
us  on  March  8.  If  a  substantial  check  has  not  been  sent  by  the 
time  this  letter  reaches  you  we  shall  expect  you  to  give  your  im- 
mediate attention  to  the  account. 

We  have  been  crediting  you  very  largely  during  the  past  season 
and  handling  your  account  with  the  utmost  leniency,  but  it  is  not 
going  to  be  possible  for  us  to  advance  your  account  froni  week 
to  week  without  some  money.  We  desire  this  letter  to  receive  the 
personal  attention  of  the  member  of  your  firm  who  looks  after 
the  finances,  so  that  he  may  arrange  for  us  to  be  supplied  with  a 
substantial  check  each  week.  Our  ability  to  continue  an  account 
with  you  will  depend  entirely  upon  whether  or  not  our  present 
account  receives  satisfactory  attention  from  now  on. 

Yours  very  truly. 

An  Appeal  to  Fairness 

Various  points  are  logically  taken  advantage  of  in  the 
following  letter.  It  points  out  that  the  remittance  is  entirely 
too  small  to  allow  shipment  of  spring  goods,  although  had 
half  of  the  fall  bills  been  taken  care  of  by  this  time,  the 
shipment  could  have  been  made.  The  customer,  moreover, 
has  treated  the  creditor  unfairly  in  view  of  his  unusual 
leniency  granted  because  of  the  extraordinary  business  con- 
ditions in  his  city. 

Dear  Sir: 

We  want  to  acknowledge  and  thank  you  for  your  letter  of  April 
II  enclosing  a  check  for  $250.     While  we  are  glad  to  receive  it, 

still  it  makes  a  pretty  small  hole  in  nearly  $ of  indebtedness, 

almost  all  of  which  is  for  last  fall,  and  therefore  long  past  due.  As 
much  as  we  regret  to  inconvenience  you  in  the  slightest,  we  cannot 
consistently  make  shipment  of  spring  goods  until  our  past-due  ac- 
count has  been  materially  reduced.     Had  you  taken  care  of  one- 


.9. 


i;  W 1 


It 

FT  » 


96 


NEW   COLLECTION   METHODS 


half  of  your  fall  bills  by  this  time,  we  would  have  been  glad  to 
make  such  shipment  of  spring  goods  as  you  needed  at  the  start,  and 
continue  shipments  from  time  to  time  while  in  the  meantime  you 
were  paying  on  the  balance ;  but  with  practically  all  of  the  fall  bills 
owing  now,  when  spring  business  is  started,  as  much  as  we  would 
like  to  favor  you,  we  could  not  consistently  increase  the  credit  at 
this  time. 

The  amount  you  are  owing  us  is  about  one-fourth  of  your  en- 
tire indebtedness,  and  during  all  of  the  past  few  months,  we  have 
received  nothing  of  your  receipts. 

We  fully  realize  what  business  conditions  are,  especially  in 
your  city,  otherwise  we  would  never  have  permitted  the  account 
to  go  on  from  week  to  week  and  month  to  month  as  it  has.  No 
house,  we  believe,  has  been  more  liberal  to  you  than  we  have  been, 
in  increasing  the  amount  of  your  credit  from  year  to  year,  and  in 
increasing  the  time  allowed  you  each  season  to  pay  up;  but  the 
amount  now  owing  on  last  season's  bills  absolutely  precludes  the 
possibility  of  our  making  shipment  of  spring  goods  except  upon  a 
cash  basis,  until  our  past-due  account  has  been  very  materially  re- 
duced, and  some  definite  arrangement  made  for  weekly  payments 
to  take  up  the  balance. 

It  is  with  the  greatest  regret  that  we  find  your  lack  of  remit- 
tances to  us  in  the  past  three  months  has  placed  us  in  a  position 
where  we  must  write  you  as  we  are  doing  now. 

Yours  very  truly, 

Helping  the  South 

When  the  war  broke  out  the  merchants  of  the  South 
were  thrown  for  a  time  into  a  desperate  condition  due  to 
the  inability  of  that  region  to  dispose  of  its  principal  crop, 
cotton.  The  manner  in  which  Northern  merchants  came  to 
the  assistance  of  their  Southern  customers  at  this  time  is 
represented  in  the  following  letters. 

Gentlemen : 

We  received  your  remittance  of  April  21  of  $100,  which  leaves 
$869.88  still  due  on  last  season.  While  we  regret  you  have  not 
been  able  to  make  these  remittances  regularly,  we  have  no  doubt 
that  from  now  on  you  will  be  able  to  do  so.  Conditions  should  be 
improving  daily,  and  we  believe  that  during  the  next  five  weeks  at 
the  outside,  you  will  be  able  to  take  up  the  entire  amount  owing 
us  past  due. 


EFFECTIVE  COLLECTION   PROPOSALS 


97 


Of  course  it  is  unfortunate  when  it  takes  up  to  the  first  of  June 
to  take  up  the  bills  of  the  previous  season,  as  this  leaves  really  only 
one  month,  that  of  June,  as  a  profit  month  to  pay  for  summer  bills. 
We  presume,  however,  you  are  making  your  spring  and  summer 
purchases  very  conservatively,  and  we  hope  that  by  so  doing  your 
affairs  at  the  end  of  this  season  may  be  in  much  better  shape  than 
they  were  in  January. 

If  you  can  indicate  to  us  that  we  will  receive  remittances  each 
week,  for  not  less  than  $150  each,  to  apply  on  our  account  until  it 
has  been  entirely  paid;  and  if  you  will  kindly  send  us  a  statement 
showing  the  result  of  your  January  or  February  inventory ;  we  shall 
be  glad  to  take  up  the  shipment  of  the  spring  goods.  We  feel  that 
with  conditions  as  they  are,  especially  in  the  South,  we  are  justified 
in  keeping  in  closer  touch  with  our  customers  and  their  affairs,  in 
which  we  feel  quite  sure  you  will  in  every  way  agree  with  us. 

Will  you  also  kindly  indicate,  in  sending  us  the  statement, 
either  on  the  blank  we  enclose  herein  or  such  other  form  as  you 
may  prefer,  not  only  the  amount  of  your  sales  and  expenses  for 
last  year,  but  how  much  your  purchases  have  been  for  spring,  what 
portion  of  the  goods  have  been  received,  and  what  portion  is  still 

to  be  shipped. 

Thank  you  for  your  continued  confidence  and  co-operation. 

Yours  very  truly. 


Dear  Sir: 

We  regret  exceedingly  to  receive  your  letter  of  August  19— 
which  should  have  been  answered  before — not  so  much  because  of 
your  inability  to  send  us  a  larger  remittance,  but  particularly  be- 
cause of  your  unfavorable  outlook  for  the  fall  and  winter.  We 
must  acknowledge  having  more  confidence  in  the  future  than  you 
have.  We  believe  that  some  basis  for  taking  care  of  the  cotton 
will  be  worked  out  by  the  National  Government;  in  fact,  we  under- 
stand report  was  made  yesterday  making  suggestion  in  regard  to 
the  matter,  and  we  believe  the  arrangement  may  be  such  as  will 
enable  the  merchants  to  realize  to  a  considerable  extent  on  their 
accounts  receivable. 

It  is  very  unfortunate  that  just  when  the  crop  should  have  been 
so  satisfactory  this  situation  should  arise.  Of  course  the  whole 
thing  is  almost  beyond  belief,  and  we  probably  should  be  thankful 
that  our  affairs  are  not  interrupted  even  more  than  they  are. 

We  realize  now  is  the  time  you  need  co-operation  and  we  will 
be  very  glad  to  extend  it  to  you.  If  you  will  simply  indicate  what 
arrangement  you  would  like  to  make  to  take  up  the  past-due  account, 


;;.*■ 


^; 


n 


i 


98 


NEW   COLLECTION   METHODS 


we  will  be  very  glad  to  settle  it  that  way.  If  you  would  prefer  to 
send  us  a  remittance  each  week  or  ten  days,  for  as  large  an  amount 
as  you  can,  it  will  be  satisfactory  to  us.  On  the  other  hand,  if  you 
would  prefer  to  close  the  account  with  notes,  due  on  the  ist  and 
15th  of  each  month,  commencing  the  15th  of  September  and  running 
to  the  1st  of  December,  that  will  be  satisfactory  to  us.  We  will 
be  glad  to  meet  whatever  reasonable  arrangement  you  may  care 
to  make. 

Yours  very  truly, 


'J* 


Dear  Sir:  » 

We  have  your  letter  of  September  12  and  want  to  thank  you 
very  especially  for  the  spirit  in  which  your  letter  was  written.  The 
merchants  of  the  South  are  going  to  need  the  co-operation  of  the 
houses  from  whom  they  buy;  they  are  going  to  need  some  addi- 
tional extension  of  credit.  It  is  going  to  take  some  little  time  for 
the  situation  to  adjust  itself.  You  have  evidently  overlooked  our 
suggestion  that  you  give  us  some  idea  of  your  present  condition 
in  regard  to  your  indebtedness,  etc.  We  would  like  to  have  this 
upon  our  files  in  view  of  the  fact  that  it  will  take  some  little  time 
to  pay  our  account  up,  and  that  it  is  going  to  be  necessary  for  us 
to  send  you  some  goods  before  the  account  is  entirely  paid. 

We  would  also  like  to  know  if  you  do  not  think  it  would  be 
well  to  close  your  present  past-due  account  with  notes,  due  on  the 
1st  and  15th  of  each  month,  commencing  the  ist  of  October  and 
running  to  the  ist  of  January.  We  believe  this  arrangement  will 
meet  with  your  approval  and  will  be  along  the  lines  of  your  sug- 
gestion. 

Yours  very  truly. 


Dear  Sir: 

We  thank  you  for  your  kindly  expressions  in  your  letter  of 
September  22,  and  are  very  glad  to  be  in  a  position  to  be  of  help 
to  our  customers.  Doing  business  is  purely  a  matter  of  mutual 
benefit,  and  it  is  a  great  satisfaction  to  find  that  the  consideration 
we  are  in  a  position  to  give  at  times  is  more  than  repaid  when 
opportunity  offers. 

We  are  sending  you  enclosed  a  statement  of  your  account  as  it 
appears  upon  our  books,  and  the  notes  as  suggested  in  our  letter  of 
the  17th.  We  shall  be  glad  to  receive  the  statement,  if  not  at  once, 
in  the  next  few  days  when  you  find  it  convenient  to  send  it 


¥l 


^\i 


EFFECTIVE  COLLECTION   PROPOSALS 


99 


We  firmly  believe  that  conditions  will  improve  daily  and  that 
by  the  first  of  December,  at  the  latest,  the  general  conditions 
throughout  the  South  will  have  been  solved,  although  perhaps  not 
to  the  entire  satisfaction  of  the  South,  but  with  as  much  satisfac- 
tion as  they  could  expect  under  conditions.  Our  feeling  is  that 
the  South  must  realize  the  fact  that  they  have  a  product  for  which, 
unfortunately,  they  have  lost  their  best  customer,  that  no  plan  may 
be  evolved  that  is  going  to  place  a  fictitious  price  on  this  commodity. 
As  we  understand  it,  there  were  two  million  bales  of  cotton  carried 
over  from  previous  years,  and  there  will  be  at  best  calculation,  six 
million  bales  over  produced  this  year.  It  would  be  absolutely  be- 
yond expectation  that  eight  million  bales  of  cotton  could  be  with- 
drawn from  the  market  upon  this  "Buy  a  Bale"  plan.  Even  allowing 
that  there  were  this  many  bales  withdrawn,  they  would  simply  be 
a  menace  to  the  crop  of  next  year  and  certainly  the  country  could 
not  afford  to  go  to  a  planter  and  say:  "You  must  not  plant  any 
cotton  next  year  because  John  Smith  has  some  cotton  he  wants 
to  get  10  cents  on." 

We  believe  firmly  that  there  are  only  about  40  per  cent  of  the 
growers  in  the  South  who  need  help.  We  believe  there  are  a 
little  more  than  50  per  cent  of  the  growers  who  are  financially  able 
to  carry  their  own  cotton.  Furthermore,  we  believe  that  the  banks, 
especially  after  the  letter  the  Secretary  of  the  Treasury,  Mr. 
McAdoo,  addressed  to  them  yesterday,  will  loosen  up  on  their  cash 
so  that  there  will  be  sufficient  currency  to  pick  the  present  crop  and 
to  buy  seed  for  the  next  crop.  Within  the  next  sixty  days,  the 
Federal  Reserve  Banks  will  be  established  and  permit  of  rediscount 
of  paper  through  the  local  banks  upon  cotton  warehouse  receipts. 
In  this  way  any  portion  of  the  crop  that  must  be  moved  can  be 
realized  upon,  if  not  in  whole,  then  in  part. 

One  thing  we  regret  the  most  is  the  attitude  of  the  merchants 
throughout  the  South,  most  of  whom  have  lost  their  nerve.  Busi- 
ness is  going  to  go  on,  probably  not  just  the  same,  but  it  is  going  to 
go  on  and  we  believe  the  Southern  merchants  are  going  to  do  an 
average  business.  We  also  believe  that  those  to  whom  they  are 
owing  are  more  than  willing  to  help  them  in  carrying  their  accounts, 
if  necessary,  and  giving  them  additional  credit.  They  have  nothing 
to  fear;  all  they  have  really  got  to  pay  is  their  current  expenses, 
and  they  certainly  would  do  enough  business  to  enable  them  to  do 
that.  The  contribution  of  the  North  to  this  situation  will  be  assis- 
tance in  giving  whatever  additional  time  and  credit  is  needed  by 
the  South. 

Yours  very  truly, 


w  ^ 


lOO 


NEW    COLLECTION    METHODS 


il 


A  Tactful  Rebuke 

Arrangements  carelessly  entered  into  and  not  fully  com- 
prehended by  the  debtor  for  whose  benefit  they  are  made, 
should  be  carefully  explained  to  him  in  detail  when  he 
defaults  upon  them.  It  is  to  be  noticed  that  the  following 
letter  avoids  saying,  as  it  might  have  done,  that  a  very 
definite  promise  had  been  broken,  and  it  likewise  avoids  say- 
ing that  the  creditor  will  proceed  to  extremities.  It  hints 
at  both  these  ideas,  but  closes  with  a  strong  appeal  to  fair 
play. 

Gentlemen : 

It  has  been  over  two  weeks  now  since  your  last  remittance. 
We  are  under  the  impression  we  had  a  definite  understanding  that 
we  would  receive  weekly  payments  in  view  of  the  very  considerable 
amount  that  is  owing  us,  most  of  which  is  past  due. 

In  your  letter  of  April  30  you  stated  that  you  intended  sending 
remittances  each  week,  that  in  all  probability  you  would  increase 
the  amount.  We  certainly  would  regret  exceedingly  any  treatment 
of  our  account  which  would  force  action  that  would  either  incon- 
venience us  or  embarrass  you,  but  under  the  present  conditions  we 
cannot  continue  the  amount  of  your  past-due  account  unless  we 
receive  weekly  payments  of  not  less  than  $....  each,  the  time 
having  elapsed  when  we  are  willing  to  accept  weekly  payments  of 

$ 

During  the  months  of  June,  July,  and  August,  you  should  have 

no  difficulty  in  sending  us  $ a  week.     Even  this  plan  will  take 

you  from  now  until  the  1st  of  September  to  pay  bills,  most  of  which 
are  on  last  year's  account. 

We  regret  to  feel  that  our  desire  to  be  as  considerate  as  possi- 
ble with  your  account  is  being  imposed  upon. 

Yours  very  truly. 


The  Note  of  Finality 

The  following  letter,  while  expressing  a  desire  to  be 
reasonable,  contains  a  note  of  finality  not  to  be  misunder- 
stood. Coming  at  the  climax  of  negotiations,  it  secured 
action  from  the  debtor  and  resulted  in  his  final  reinstate- 
ment. 


EFFECTIVE  COLLECTION   PROPOSALS 


lOI 


Gentlemen : 

When  you  wrote  us  on  April  22  at  the  time  you  sent  $50,  we 
naturally  expected  that  you  would  continue  your  remittances  from 
week  to  week  until  your  past-due  account  was  entirely  paid.  We 
are,  therefore,  very  much  disappointed  to  have  waited  over  three 
weeks  without  having  received  any  additional  payments. 

We  do  not  feel  you  are  justified  in  asking,  or  we  in  granting, 
any  further  extension  on  this  account.  We  certainly  have  not  re- 
ceived our  share  of  your  receipts  which  is  all  we  ask  or  expect. 
Even  now,  however,  we  have  no  desire  to  embarrass  you,  but  we 
must  insist  on  weekly  remittances  for  not  less  than  $100,  the  first 
to  reach  us  not  later  than  Wednesday,  the  23rd,  and  continuing  each 
week  until  your  account,  both  due  and  coming  due,  shall  have  been 
taken  up.  This  arrangement  is  most  liberal  as  it  will  take  you, 
according  to  our  books,  some  two  months  to  take  up  bills  due  and 
now  coming  due.  We  shall  expect  your  prompt  compliance  with 
this  reasonable  suggestion. 

Yours  very  truly, 


II 


GIVING   CONSTRUCTIVE   SERVICE 


103 


CHAPTER    XIII 

GIVING  CONSTRUCTIVE  SERVICE 

"Selling"  the  Discount 

One  of  the  chief  values  which  any  credit  or  collection 
department  has  to  sell  is  the  discount.  In  certain  lines  of 
business,  such  as  certain  parts  of  the  rubber  trade  and  the 
garment  trade,  this  discount  is  so  generous  that  any  mer- 
chant should  find  it  profitable  to  borrow  at  the  bank  in  order 
to  avail  himself  of  it.  But  even  when  the  amount  is  2  per 
cent  or  i  per  cent,  the  articles  sold  on  these  terms  usually 
permit  of  a  prompt  turnover,  so  that  discounting  becomes  a 
very  profitable  feature  of  one's  business.  The  creditor's  in- 
terest in  the  discount  is  naturally  greater  than  the  customer's, 
for  he  offered  the  bonus  in  order  to  reduce  his  load  of  out- 
standing indebtedness  and  to  make  his  capital  available  for 
business  undertakings. 

Accordingly,  letters  urging  merchants  to  discount  their 
bills  are  written  by  nearly  all  the  credit  men  at  one  time  or 
another.  "In  simple  justice  to  yourself,  you  ought  to  be 
taking  it,"  writes  one  man.  "I  owe  it  to  you,"  says  another, 
"to  bring  very  earnestly  to  your  attention  and  in  detail  the 
advantages  to  be  had  from  discounting." 

The  following  long  and  interesting  letter  was  effective 
largely  because  of  the  strong  appeal  it  made  to  the  cus- 
tomer's pride  as  well  as  to  his  desire  to  make  money.  With 
this  "flying  start"  the  letter  proceeded  to  point  out  that  the 
customer's  business  with  the  creditor  had  actually  been  de- 
creasing; yet  in  spite  of  this,  he  was  asking  the  creditor  for 
such  extensions  of  time  as  practically  to  put  the  creditor  in 
the  position  of  financing  those  competing  houses  which  were 

102 


also  selling  to  this  customer.  A  striking  appeal  to  fair  play 
ended  this  section  of  the  letter,  and  a  strong  appeal  to  the 
customer's  money-making  instinct,  together  with  expressions 
of  confidence  that  appealed  to  his  pride,  brought  the  letter 
to  a  close. 

Gentlemen : 

We  wish  to  acknowledge  your  letter  of  February  21  in  which 
you  refer  to  your  account  and  say  that  it  will  be  cleared  up  in  a 
short  time.  This  is  satisfactory  to  us  and  we  are  glad  to  be  of 
service  to  you  in  this  respect. 

We  have  a  very  high  sense  of  regard  for  your  firm  and  a  full 
appreciation  of  the  very  pleasant  relations  which  have  existed  be- 
tween us.  Accompanying  that  is  a  sense  of  duty  which  was  very 
acute  at  the  moment  of  reading  your  letter.  Because  of  our  long 
friendship  and  the  fact  that  your  interest  is  our  interest,  we  want 
to  suggest  that  perhaps  you  are  falling  into  a  detrimental  habit  in 
losing  discount. 

This  has  been  a  subject  of  discussion  between  us  for  several 
years  and  we  have  not  changed  our  opinion  in  the  slightest  degree, 
but  are  more  certain  than  ever  that  you  do  not  do  your  store  justice 
when  you  finance  it  through  wholesale  houses. 

We  do  not  want  you  to  feel  that,  if  you  actually  needed  an  ex- 
tension of  time  in  the  ordinary  course  of  business,  because  you  were 
unable  to  go  to  the  regular  sources  and  obtain  such  capital  as  you 
required,  we  should  not  be  perfectly  willing  to  help  you,  but 
to  lose  discount  amounting  to  vastly  more  than  the  interest  charge, 
when  such  a  loss  is  entirely  unnecessary,  puts  a  drain  on  your  busi- 
ness which  no  organization  can  bear  continually. 

You  say  that  you  have  made  heavy  advance  purchases  to  pro- 
vide against  the  radical  increase  in  prices,  but  evidently  these  pur- 
chases have  been  in  other  goods  than  men^s  clothing,  for  your  orders 
with  us  show  only  normal  purchases;  in  fact,  we  did  less  business 
with  you  in  1917  than  we  did  in  1916,  and  we  did  not  do  any  more 
with  you  in  1917  than  we  did  in  1914  and  1915.  We  have  actually 
been  losing  rather  than  gaining  with  you. 

This  means  then  that  whatever  extra  purchases  you  have  made 
have  not  been  in  our  line  and  that,  even  so,  you  are  asking  us  to 
aid  in  financing  those  purchases.  We  are  not  objecting  to  that  in 
this  particular  case,  but  the  justice  in  a  matter  of  that  kind  is  so 
clear  that  you  would  not  and  could  not  expect  us  to  make  a  practice 
of  it. 

We  really  deserve  more  business  than   we  are  getting  from 


^. 


fl 


104  ^^^    COLLECTION   METHODS 

you.    We  believe  that,  when  our  salesman  comes  to  see  you  again 
vou  ought  to  eliminate  these  conflicting  lines  and  do  for  us  what 
we  are  doing  for  you,  namely,  give  us  all  you  have  in  our  grade 
of  goods  because  we  are  confining  the  sale  of  our  Ime  to  your  store. 

In  writing  you  thus,  we  are  primarily  concerned  about  the 
future  of  your  store  and  we  hope  we  may  yet  succeed  m  showing 
you  the  mistake  which  you  continue  to  make  in  not  arranging  to 
discount  bills  promptly  on  maturity  dates.  It  is  only  when  a  busi- 
ness is  properly  financed  that  it  becomes  really  profitable  and  it  is 
only  under  such  a  condition  that  one  feels  free  to  promote  it  to  its 
ultimate  possibilities. 

We  have  always  feU  that  your  business  has  not  by  any  means 
reached  its  limit  and  we  should  not  be  at  all  surprised  if  you  could 
make  a  hundred  per  cent  increase  in  your  volume  beyond  what  it  is 
now.    We  should  like  very  much  to  work  with  you  intimately  with 

that  object  in  view.  -,         .     ,. 

Think  this  over  and  come  in  and  talk  with  us  about  it  the  next 

time  you  are  in  Chicago. 

Yours  truly. 

Reforming  the  Discount  Abuse 

The  co-operative  movement  headed  by  the  National 
Association  of  Credit  Men  is  gradually  reducing  the  evil  of 
the  abuse  of  the  cash  discount.  It  is  hard  to  make  the 
customer  feel  ashamed  of  bad  practice  in  this  direction,  be- 
cause he  knows  it  to  be  so  common ;  merely  to  denounce  it 
does  not  often  bring  results.  With  the  same  earnestness  and 
good-will  that  he  shows  in  selling  credit,  the  business  man 
must  sell  the  idea  of  a  reform  in  this  abuse,  until  he  brings 
the  offenders  over  into  the  army  co-operating  for  this  pur- 
pose. 

The  folder  entitled  "The  Cash  Discount  Historically 
Treated,*'  by  J.  H.  Tregoe,  secretary  of  the  National  Asso- 
ciation of  Credit  Men,  is  written  so  as  to  arouse  interest  in 
the  subject,  and  to  make  a  business  man  think  just  what  is 
the  nature  of  the  act  he  has  been  wrongfully  committing. 
It  begins  in  such  a  fashion  as  to  arouse  curiosity  and  not 
to  arouse  antagonism,  and  it  appeals  strongly  to  pride  and 


GIVING   CONSTRUCTIVE   SERVICE 


105 


co-operation.  One  credit  man  testifies  that  he  mails  it  to 
customers  who  have  taken  a  discount  they  were  not  en- 
titled to,  saying  that  since  reading  it  he  has  been  led  to 
think  more  deeply  on  the  subject,  and  asking  his  customer, 
"Should  we  not  all  feel  in  honor  bound  not  to  deviate  from 
the  terms  on  which  our  business  is  based?" 

Offering  Constructive  Service 

In  Chapters  XXVII  and  XXVIII  on  constructive  credit 
work  another  method  is  shown.  Instead  of  leaving  the  mer- 
chant to  his  own  salvation,  the  house  which  employs  assistants 
skilled  in  retail  efficiency  is  able  to  offer  a  definite  plan  based 
upon  the  visit  and  examination  of  their  representative. 

The  two  following  letters  are  presented  as  the  final 
exhibit  of  correspondence  in  this  chapter.  Their  tone  of 
good-humored  friendliness  is  interesting,  as  is  their  frank 
statement  of  the  dangerous  financial  position  in  which  the 
customer  stands. 

Gentlemen : 

Please   accept  our  thanks   for   sending  a  copy  of  your  recent 

inventory  showing  assets  $ ,  Habilities  $ and  a  net  worth 

of  $ 

A  comparison  with  the  figures  of  a  year  ago  indicates  that  yot» 
have  reduced  your  percentage  of  indebtedness   from  49.7  to  48.07 

per  cent,  but  you  made  a  further  loss  in  your  net  worth  of  $ 

The  loss  for  1916  was  $ ,  so  that  in  two  years  your  total  loss 

has  been  about  $ 

While  you  overlooked  giving  us  your  sales  and  expenses,  we 
suppose  that  the  loss  is  due  to  the  fact  that  your  stock  is  still  too 
large  in  proportion  to  your  sales,  and  that  you  have  necessarily  had 
to  cut  prices  to  an  unreasonable  degree  in  order  to  dispose  of  your 
goods. 

The  situation,  as  it  appears  to  us,  is  so  serious  that  you  ought 
to  make  an  effort  immediately  to  correct  it.  Just  how  it  is  to  be 
done,  we  cannot  tell  you  at  this  distance,  but  we  shall  be  very  pleased 
to  send  a  man  to  you  who  can  help  you  analyze  the  condition  and 
perhaps  outline  a  definite  plan  for  a  solution  of  the  numerous  prob- 
lems which  must  be  solved  before  you  will  ever  make  money  again. 


io6 


NEW  COLLECTION   METHODS 


GIVING  CONSTRUCTIVE  SERVICE 


107 


* 


Mr has  managed  successfully  several  retail  stores  and 

understands  thoroughly  the  proper  methods  of  merchandising,   ad- 
vertising, and  financing  which  are  generally  employed  by  successful 

merchants.     He  can  go  to at  almost  any  time  after  ten  days 

from  now,  if  you  want  him,  and  he  can  stay  two  or  three  weeks 
if  he  can  be  of  service  to  you. 

He  would  proceed  with  our  fullest  confidence  and  you  can  en- 
trust to  him  all  the  secrets  of  your  business.  It  is  only  with  the 
hope  that  he  would  have  your  confidence  that  we  would  want  him 
to  make  the  effort  at  all. 

This  suggestion  is  made  primarily  in  your  interest,  although 
we  admit  we  have  a  selfish  motive  also.  We  have  been  doing  busi- 
ness with  you  so  many  years  and  so  pleasantly,  that  we  are  desirous 
of  making  every  effort  to  continue. 

We  have  written  you  many  letters  in  the  past,  and  we  hope 
that  you  won't  think  that  this  is  just  another  one  of  those  com- 
munications of  protest  and  admonition.  We  feel  that  now  is  the 
time  to  do  the  things  which  we  have  expressed  the  hope  you  would 
do,  but  which  have,  either  because  of  timidity  or  a  false  sense  of 
pride,  been  delayed. 

To  delay  longer,  in  our  opinion,  would  be  absolutely  fatal,  and 
we  hope  that  you  won't  let  anything  interfere  with  your  making 

definite  plans  at  once. 

Yours  truly. 


Dear  Sir: 

Since  our  representative  returned  from  ,  we  have  talked 

over  pretty  carefully  the  condition  of  your  affairs.  We  are  sorry 
that  you  have  allowed  the  profits  of  your  business  to  be  withdrawn 
so  regularly  by  the  monthly  payments  to  stockholders,  and  we  are 
sure  that  you  will  admit  it  has  been  a  mistake  which  should  be  cor- 
rected with  as  little  delay  as  possible. 

You  undoubtedly  have  been  putting  these  withdrawals  into  out- 
side investments,  which  probably  have  not  proven  as  profitable  as 
the  mercantile  business  has  been  for  so  many  years.  Our  suggestion 
is  that  you  put  back  some  of  the  capital  which  you  have  withdrawn, 
even  if  it  means  a  certain  amount  of  sacrifice  in  these  outside  hold- 
ings. If  there  should  happen  to  be  a  loss  in  this  connection,  it  would 
be  offset  by  the  increased  profits  from  the  mercantile  business  after 
a  very  short  period. 

After  arranging  this  particular  matter,  your  efforts  should  be 
directed  toward  the  reduction  of  your  stock,  the  elimination  of  as 


many  lines  as  possible  in  every  department,  and  the  installation  of 
a  complete  set  of  records  which  will  give  you  detailed  information 
about  your  business  constantly,  which  you  do  not  have  at  the  pres- 
ent time.  There  are  other  things  which  we  might  recommend,  but 
these  are  the  chief  ones  which  should  have  your  attention  without 

any  delay. 

We  are  going  to  try  to  make  ourselves  as  useful  to  you  as  we 
possibly  can,  but  it  is  not  hard  to  put  your  finger  on  the  difficulties ; 
you  already  know  what  they  are  and  we  have  absolute  confidence 
in  your  ability  to  straighten  them  out. 

There  is  one  thing  which  we  have  never  taken  up  with  you 
which  we  think  ought  to  be  disposed  of  at  this  time.  It  is  cus- 
tomary in  all  cases  where  we  deal  with  corporations  to  ask  for  a 
guaranty  signed  by  the  stockholders.  This  has  come  up  since  we 
became  incorporated  ourselves,  and  we  have  the  guarantees  of  most 
of  the  corporations  which  we  deal  with.  It  has  been  on  our  minds 
to  take  it  up  with  you  before. 

We  are  enclosing  one  of  our  regular  blanks  herewith,  which 
we  have  made  out  for  $30,000.  This  is  in  excess  of  your  order,  but 
will  provide  for  additional  orders  which  you  may  send  us. 

Of  course,  this  blank  will  have  to  be  sent  to   for  the 

signature  of ,  but  we  will  not  hold  up  the  spring  goods  until 

it  is  received.     If  you  will  advise  us  that    and  you   have 

signed  it,  and  that  you  believe    will  do  so,  we  will  begin 

shipments  right  away. 

We  believe  thoroughly  in  your  business,  and  its  ultimate  success. 
There  have  been  certain  evils  which  have  crept  into  it,  which  have 
not  been  eliminated  as  fast  as  they  have  appeared,  and  we  feel  a 
little  guilty  in  not  keeping  in  closer  touch  with  you  in  the  last 
three  or  four  years,  because  we  have  been  watching  these  evils 
developing.  It  is  sometimes  unwise  to  be  backward  about  express- 
ing an  opinion,  and  we  are  sure  that  you  would  have  been  glad 
of  any  criticisms  which  we  may  have  cared  to  make  in  these  few 
years. 

We  know  that  you  will  solve  the  problems  in  the  right  way, 
and  we  assure  you  of  our  best  co-operation. 

Yours  truly. 

It  remains  only  to  say  that  the  customer  met  every  sug- 
gestion of  the  creditor  in  the  same  fine  spirit  in  which  it 
was  offered  and  that  with  their  co-operation  he  has  estab- 
lished himself  on  a  sound  financial  basis. 


io8 


NEW   COLLECTION   METHODS 


GIVING   CONSTRUCTIVE   SERVICE 


109 


Using  the  House  Organ 

The  ideal  house  organ  is  written  in  the  spirit  of  the 
family  letter  which  goes  from  one  member  to  another  in  the 
spirit  of  mutual  helpfulness  and  interest.  It  has  a  splendid 
opportunity  to  sell  credit,  especially  by  articles  or  stories 
which  point  out  the  dealer's  own  interest  in  abiding  by  the 
principles  of  sound  business.  The  house  organ  of  Robert  H. 
IngersoU  and  Brothers  Company  once  had  an  article  entitled, 
"Don't  Buy  Too  Many  Peanuts  at  Once,"  a  story  of  an 
Italian  fruit-stand  man  who  taught  his  nephew  the  peril  of 
overstocking  by  allowing  him  to  go  through  the  hard  ex- 
perience of  bankruptcy  so  that  he  might  learn  never  to  do 
it  again.  The  story,  you  will  notice,  said  nothing  about 
jewelers   who   overstock,   but   the   moral   of    the   tale   was 

plain. 

Bankers,  credit  men,  and  financial  authorities  of  every 
kind  are  often  glad  to  respond  to  the  request  for  articles 
on  credit  to  be  inserted  in  house  organs.  Salesmen  can  be 
asked  to  write  articles  from  their  experience.  Now  and  then 
a  customer  can  be  found  who  has  learned  some  lesson  of 
good  credit  in  the  past  and  is  willing  to  recount  his  ex- 
perience for  the  common  welfare. 

Envelope  Inserts 

Special  bulletins  or  booklets,  reprints  of  m?gazine 
articles,  accounts  of  addresses  delivered,  clippings  showing 
the  statements  of  prominent  men,  are  good  material  to  use 
in  the  campaign  of  education  that  arouses  interest  in  credit. 
The  National  Association  of  Credit  Men,  under  the  direction 
of  its  secretary,  J.  H.  Tregoe,  is  tireless  in  its  efforts  to 
bring  the  importance  of  credit  to  the  attention  of  business 
men  and  gladly  co-operates  with  credit  managers  who  wish 
to  obtain  effective  material  to  use  in  dealing  with  their 
customers. 


Advertising  to  Aid  Collections 

The  Credit  Men's  Association  of  Detroit,  Michigan,  con- 
ducted during  the  winter  of  1917-1918  an  advertising  cam- 
paign through  the  columns  of  the  Detroit  Free  Press,  using 
large  space,  and  emphasizing  the  advantages  of  credit  to  the 
community  and  the  importance  of  prompt  pay,  both  as  a 
matter  of  pride  and  as  an  asset  in  the  struggle  for  success. 

"National  Pay-Up  Week,"  conducted  in  various  localities 
according  to  plans  suggested  by  the  Merchants'  Trade  Journal 
of  Des  Moines,  Iowa,  has  a  similar  effect  in  educating  the 
community  in  the  principles  of  credit  and  collection.  Its  im- 
mediate effect  on  collection  comes  through  a  strong  appeal  to 
pride  and  co-operation ;  by  urging  everybody  to  "get  into  the 
game,"  it  removes  the  sense  of  shame  which  is  one  of  the 
strongest  factors  in  keeping  delinquent  retail  customers  trom 
walking  up  to  their  creditors  and  settling  old  bills. 


tl 


? 


CHAPTER    XIV 

CO-OPERATION  WITH  THE  SALES 
DEPARTMENT 

Determining  Sales  Policies 

"Our  credits  are  made  before  our  salesmen  go  on  the 
road,"  said  the  credit  manager  for  one  of  the  greatest  whole- 
sale houses  in  the  world.  "Our  salesmen  are  told  just  whom 
to  approach.  That  makes  the  management  of  our  credit  and 
collection  department  comparatively  simple."  Doubtless  this 
is  a  fortunate  position,  but  it  is  also  a  fact  that  not  all  sellers  of 
merchandise  can  occupy  it  at  the  same  time. 

"I  don't  see  how  you  can  sell  those  people,"  said  one 
credit  man  to  another.  "I  don't  see  why  you  can't  sell 
them,"  replied  the  other  with  a  chuckle.  "I  make  $50,000 
every  year  on  business  you  turn  down." 

If  all  credit  men  were  to  deal  only  with  gilt-edged  credit 
risks,  a  large  part  of  the  United  States  would  go  without 
merchandise.  The  skilful  credit  manager  secures  informa- 
tion from  sources  which  his  competitor  overlooks;  forms 
judgments  from  indications  invisible  to  the  ordinary 
observer;  educates  the  poor  risks  into  the  "good-pay"  class; 
and  by  the  use  of  some  mysterious  sixth  sense  detects  the 
signs  of  disaster  and  protects  himself  before  the  crash  comes. 
By  exercising  caution  at  all  points,  instead  of  only  at  the 
period  of  credit-granting,  and  by  using  constructive  measures, 
instead  of  only  negative  ones,  he  increases  the  business  of  his 
house  without  increasing  its  dangers.  Safeguarded  by  his 
skill  his  house  can  undertake  sales  policies  that  would  other- 
wise be  impossible.  The  new  company,  the  company  hard 
pressed  by  competitors,  the  company  obliged  to  use  the  in- 

IJO 


CO-OPERATION   WITH   SALES   DEPARTMENT         m 

stalment  plan  as  the  only  means  of  marketing  its  goods — 
these  are  among  the  examples  of  houses  that  have  need  of 
good  credit  men. 

The  voice  of  the  credit  man  must  be  heard  in  determin- 
ing all  sales  policies.  He  must  see  to  it  that  goods  are  not 
oversold  either  by  advertisements  or  salesmen;  that  no 
promises  are  made  which  the  house  will  not  back  up;  and 
that  abnormal  credit  risks  are  not  involved  in  the  market- 
ing plan. 

Failure  to  Co-ordinate  Means  Loss 

The  basic  facts  with  regard  to  the  relations  between 
credit  and  sales  are  that  if  the  credit  man  turns  down  orders 
that  could  be  accepted,  the  company  loses  business;  and  if 
the  salesmen  sell,  careless  of  credit,  the  company  loses  money 
if  it  accepts  their  orders  and  loses  the  customer's  good-will 
if  it  turns  them  down. 

"We  co-ordinate  our  departments,"  says  M.  W.  Cresap, 
general  manager  of  Hart,  Schaffner  and  Marx,  "by  having 
them  imder  the  same  direction.  The  work  of  our  sales 
department  is  done  almost  exclusively  by  the  same  people 
who  have  charge  of  the  advertising  and  the  credit.  For  our 
purposes  this  is  a  better  arrangement  than  to  split  it  up 
under  separate  heads  whose  relations  to  each  other  some- 
times conflict." 

Each  new  sales  plan  should  have  a  corresponding  credit 
and  collection  plan. 

The  Second  Liberty  Loan 

A  flaw  in  the  sales  campaign  for  the  Second  Liberty 
Loan  was  partly  responsible  for  the  failure  of  these  bonds 
to  "stay  sold."  The  slogan  used  in  some  quarters  was 
"Borrow  and  Buy"  and  stress  was  laid  on  the  easy  negotia- 
bility of  the  bonds,  with  the  result  that  purchasers — ^not  over- 


f-r 


112 


NEW   COLLECTION   METHODS 


11 


i 


sold,  but  undereducated  on  an  important  feature  of  theii 
purchase — allowed  the  bonds  to  go  back  on  the  market.  In 
the  third  campaign  this  mistake  was  in  large  part  corrected ; 
the  country  was  shown  that  the  war  must  be  financed  out 
of  savings,  not  out  of  borrowings;  and  liquidation  of  pur- 
chases was  at  least  not  made  for  this  avoidable  reason. 

Linking  Arms  With  the  Salesman 

"Our  salesmen  are  lOO  per  cent  representatives  of  our 
house,"  says  the  president  of  a  manufacturing  company. 
"When  they  enter  a  customer's  store,  we  teach  them  to  say 
that  they  are  not  from  our  house  but  of  our  house." 

Morale — which  means  enthusiasm,  loyalty,  fighting  spirit 
— is  the  secret  of  success  in  any  organization,  and  no  system 
of  co-operation  between  sales  and  credit  will  succeed  with- 
out a  strong  morale.  The  salesman,  like  the  customer,  must 
be  sold  credit. 

The  natural  inclination  of  the  salesman  is  to  sell.  He 
is  not  a  clerk  and  he  does  not  like  to  make  out  long  reports. 
He  naturally  inclines,  moreover,  to  champion  his  customers 
against  the  credit  department,  to  make  favorable  credit  re- 
ports in  doubtful  cases,  and  to  "go  easy"  on  collections.  He 
finds  it  easy  to  sympathize  with  the  customer  who  has  been 
drawn  on,  or  has  had  credit  turned  down,  or  an  order  held 
up,  or  in  any  way  has  been  disciplined.  The  good- will  of  the 
customer  is  his  bread  and  butter,  and  it  is  small  wonder 
that  he  seeks  the  easiest  road  to  good-will. 

But  the  salesman  can  be  "sold"  credit;  he  can  become 
a  hearty  advocate  of  the  credit  man's  point  of  view.  With 
the  right  propaganda  to  encourage  morale,  he  can  come  to 
see  that  his  advantage  lies  in  promoting  the  objects  dear  to 
the  credit  man's  heart.  Without  the  right  propaganda  to 
encourage  morale,  even  the  salesman's  selling  power  will 
decline. 


CO-OPERATION   WITH   SALES    DEPARTMENT         113 


A  famous  credit  manager  remarked,  "Getting  a  salesman 
to  pay  attention  to  the  work  of  our  department  has  been 
like  making  water  run  up  hill ;  but  it  has  been  done.  They 
give  us  the  finest  kind  of  co-operation  if  we  take  the  pains 
to  show  them  what  our  work  means  to  them.  I  now  feel 
that  if  a  salesman  slips  up  in  his  credit  work,  the  fault  is 
mine  and  not  his."  His  salesmen  are  interested  not  only  in 
selling  but  also  in  credit,  and  by  this  means  he  increases 
their  pride  in  their  work.  The  excellent  record  of  collection 
in  a  salesman's  territory  and  the  low  annual  turnover  of 
customers  are  items  in  which  he  may  take  a  genuine  pride. 
They  are  a  measure  of  his  loyalty  as  well. 

Where  the  Salesman's  Interest  Lies 

Every  good  salesman  knows  that  sound  credit  and 
prompt  collection  are  an  asset  to  his  house;  but  not  every 
salesman  is  persuaded  of  the  credit  department's  ability  to 
do  its  job  well.  The  credit  department  must  demonstrate  to 
him  its  willingness  and  ability  to  increase  sales ;  to  link  arms 
with  him  in  the  constructive  task  of  building  up  business. 

How  the  Salesman  Can  Help 

Collections  need  not  be  a  regular  part  of  a  salesman's 
duty,  but  he  should  be  thoroughly  conversant  with  the 
policies  of  the  credit  and  collection  department,  and  he,  as 
well  as  the  members  of  the  department,  should  have  a  clear 
vision  of  the  marketing  plan  of  the  house  as  a  whole. 

The  chief  ways  in  which  the  salesman  can  help  credit  and 
collection  departments  are  the  following: 

The  good  salesman: 

1.  Obtains  credit  information  as  the  basis  for  the  first 

order. 

2.  Educates  the  customer  as  to  the  terms  of  the  house. 

3.  Avoids  overstocking. 


1^    •. 


..  u 


#1 


ir 


11 


II .  NEW   COLLECTION   METHODS 

4.  Avoids  forcing  goods  on  an  unwilling  customer. 

5.  Resells  a  customer,  after  delinquency,  goods,  credit, 

and  service— adjusts  grievances  between  the  cus- 
tomer and  the  credit  department. 

6.  Educates  the   customer   in  better  business  methods 

in  order  to  increase  good-will,  to  help  the  cus- 
tomer pay  for  his  goods,  and  to  build  him  into  a 
source  of  better  business. 

7.  Watches    the    customer's    "character,    capital,    and 

capacity"  in  order  to  advise  the  credit  depart- 
ment in: 

(a)  Enlarging  his  line  of  credit. 

(b)  Decreasing  his  line  of  credit. 

(c)  Pushing  collections  before  bankruptcy. 

(d)  Helping  to  avoid  bankruptcy. 

8.  Advises  the  credit  department  as  to  the  most  effective 

means  of  collection  with  regard  to: 

(a)  Local  trade  condition. 

(b)  The  customer's  business  condition. 

(c)  The  customer's  personal  peculiarities. 

9.  Helps  to  collect  difficult  accounts. 

Obtaining  Information 

One  credit  manager  told  his  salesmen,  "The  most  valu- 
able things  you  can  tell  me  about  a  retailer  are  the  things 
which  enable  me  to  picture  him  when  I  am  writing  letters. 
Is  he  a  big,  heavy  fellow  with  sandy  hair  and  a  hearty 
laugh,  or  is  he  small,  thin-faced,  and  dark-eyed?  Some  of 
the  same  information  that  helps  you  to  sell  him,  will  help 
me  make  my  collections."  Evidently  this  collection  manager 
appreciated  that  collection  is  resale.  Another  kept  on  file 
photographs  of  his  customers  and  their  places  of  busmess 
that  proved  of  value  in  helping  to  handle  distant  accounts. 
It  is  a  good  plan  to  urge  salesmen  to  cover  the  back  of  the 


CO-OPERATION   WITH   SALES   DEPARTMENT         115 

usual  information  blank  with  personal  data  that  seems  to 

them  valuable. 

The  printed  list  of  questions  which  the  salesman  is  asked 
IG  answer  should  be  short  and  restricted  chiefly  to  those 
items  of  personal  information  which  none  but  the  salesman 
can  obtain  so  well.  In  the  preparation  of  material  for  the 
present  book  the  writer  examined  the  credit  files  and  in- 
formation blanks  of  many  houses,  but  it  was  a  rare  ex- 
perience to  discover  one  completely  made  out.  The  conclu- 
sion seems  to  be  either  that  the  salesman  should  receive  some 
added  incentive  for  collecting  answers  to  a  long  list  of 
questions  or  that  the  list  of  questions  should  be  reduced  in 
number  and  the  salesman  shown  the  importance  of  answer- 
ing every  one  of  them.    A  form  of  salesman's  report  is  given 

on  page  116. 

One  great  importance  of  the  salesman's  information  lies 
in  the  fact  that  as  his  investigations  are  made  on  the  ground, 
he  may  disclose  sources  of  strength  not  revealed  by  other 
kinds  of  information,  thus  enabling  the  credit  department 
to  increase  sales.  The  house  which  cannot  employ  a  travel- 
ing credit  representative  in  such  cases  will  find  it  worth  its 
while  to  train  salesmen  to  grasp  this  important  opportunity 
—the  credit  department  always  reserving  the  right  to  inter- 
pret the  information  for  itself. 

Education  as  to  Terms 

In  educating  the  customer  as  to  the  terms  of  the  house, 
the  salesman  has  a  great  opportunity  to  show  that  his  com- 
pany stands  for  service  in  all  of  its  departments,  and  that 
the  credit  manager  considers  the  interest  of  the  customer  on 
a  par  with  his  own.  The  salesman  should  thoroughly  under- 
stand the  reasons  for  the  existing  terms  and  should  be  forti- 
fied with  all  the  arguments  in  favor  of  short  terms,  close 
collections,    rapid   turnover,   and  discounting   of   bills.      He 


I>  ' 


I 


N 


ii6 


NEW  COLLECTION  METHODS 


III!  i 


SALESMAN'S  NEW  CUSTOMgR   REPORT. 

T«  h»  filM  oat  and  MBt  in  wkh  eacb  New    AecMat 

If  titiaU*  to  obuin  complete  informetion  supply  m  madi  a«  poMible. 


Date. 


Sola  to P.O.  AadreM. 

Stat* 


NUM». 


INDIVIDUAtS  IN  FIRM. 
Af.. 


•Mwied. 


IP  A  CORPORATION 


OCficen. 


Kind  of  BtttiaoM How  lone  In  BatmeM. 

Ever  failed ,....:Er«r  been  •oed 

Character ^ Bminan   Ability 

D«M  Basldnf  with , 


ASSETS 
Caab 

Accennt*  Receivabla 

BiUs  Receivable 

Merchandite ..,,.. 

RoalEsUte 

Hone*  and  Wagon* 

Tools  and  Machinerr 

Office  Furniture 

Other  AsmU 

TOTAL $ 

1 

FINANCIAL  STATEMENT. 

UABILITIES 


Accounts  Payable 

Notes  PayabU 

Mortgages,  Real  Estat*.. 

Mortgages,  Chattel 

Other  Liabilitiet 


TOTAL $ 

SURPLUS $ 


TTTIT 


Insurance  carried?. 


Buys  from  firms  named  below: 
NAME 


ADDRESS 


Write  your  own  opinion 
on  other  side. 


Salesman's  Report 

A  brief  and   satisfactory  form   for  some   kinds  of  business.     It  shows  the  salesman 
at  a  glance  the  important  points  wanted  by  the  credit  man.     Note  the  value  attached 

to  the  salesman's  own  opinion. 


CO-OPERATION   WITH    SALES   DEPARTMENT  117 

can  prove  that  these  matters  exist  for  the  customer's  welfare, 
for  the  benefit  of  the  whole  industry,  manufacturers,  jobbers, 
and  retailers  alike.  But  the  credit  and  sales  departments 
must  work  in  harmony  and  convince  the  salesman  that  these 
arguments  are  really  sound  and  that  his  interest  lies  in  sup- 
porting them.  Otherwise  the  salesman  is  all  too  likely  to 
form  a  party  with  the  customer  against  the  credit  depart- 
ment. In  dealing  with  the  customer  the  salesman  can  appeal 
not  only  to  his  self-interest  but  also  to  his  pride  in  con- 
ducting a  shipshape  business.  Frequently,  too,  he  can  appeal 
to  the  customer's  loyaUy  to  the  house. 

How  to  Avoid  Overstocking 

Training  enthusiastic  salesmen  not  to  overstock  their 
customers  is  one  of  the  hardest  tasks  of  the  credit  depart- 
ment and  an  impossible  task  unless  the  sales  department 
works  in  harmony.  The  salesman  should  be  shown  the  effect 
of  overstocking  on  failures,  and  the  consequent  loss  of 
business  to  the  house.  The  evils  of  overstocking  from  the 
point  of  view  of  the  sales  department,  the  salesman,  and  the 
customer  may  be  summarized  as  follows: 

First,  overstocking  is  one  of  the  most  common  causes  of 
retail  bankruptcy. 

Second,  bankruptcy  of  the  retailer  means  the  loss  of 
goods  and  money  to  the  company  and  the  loss  of  an  estab- 
lished trade  outlet.  It  means  the  labor  of  securing  a  new 
account  and  the  risk  entailed  in  opening  relations  with  an 
untried  customer. 

Third,  a  share  of  this  labor  and  loss  falls  on  the  sales- 
man in  that  territory. 

Fourth,  an  overstocked  merchant  cannot  buy  so  fre- 
quently and  uses  a  smaller  amount  of  goods  in  a  season, 
thus  being  less  profitable  to  the  salesman. 

Fifth,  an  overstocked  merchant  cannot  grow  into  an  out- 


ii8 


NEW   COLLECTION   METHODS 


CO-OPERATION   WITH   SALES   DEPARTMENT         119 


ii! 


I 


let   for  the  goods  of  the  house  with  more  profit   to  tbi' 
salesman. 

"Our  salesmen  ought  to  say  to  a  merchant  at  the  end  o^ 
a  visit,  'Now  the  total  of  your  sales  is  $2,400/  but  does  he? 
Not  a  bit  of  it.  He  knows  the  merchant  would  be  terrified 
and  would  turn  right  around  and  cut  down  the  order; 
whereas,  perhaps  if  the  goods  were  actually  delivered,  the 
merchant  would  grit  his  teeth  and  sell  them.  So  the  sales- 
man waits  till  he  gets  to  the  next  town  before  sending  back 
an  itemized  list  of  purchases  and  even  then  he  doesn't  show 
the  total.  Of  course,  one  result  of  this  policy  is  hard  col- 
lections and  another  is  cancellations.  Just  now,  in  view  of 
the  shortage  of  merchandise,  we  cannot  allow  any  cancella- 
tions, and  so  we  are  acknowledging  all  orders  as  soon  as 
received,  showing  the  totals  and  giving  the  merchant  a 
chance  to  cut  down."  This  credit  manager's  statement  re- 
minds us  why  a  salesman  oversells  and  how  to  correct  the  evil. 

The  Evils  of  a  Forced  Order 

Few  accounts  are  so  hard  to  collect  as  those  for  goods 
which  the  retailer  did  not  want  to  buy  but  had  forced  upon 
him  by  an  overbearing  salesman.  However,  as  this  is  the 
usual  excuse  of  unscrupulous  dealers  who  habitually  cancel 
many  of  their  orders,  it  must  be  scrutinized  carefully  when 
offered.  In  like  manner  the  house  must  make  sure  that  no 
just  grounds  exist  for  offering  the  excuse.  The  retailer 
who  cancels  orders  is  in  the  same  class  with  the  woman  who 
wears  a  dress  to  a  party  and  sends  it  back  to  the  depart- 
ment store  the  next  morning.  Both  wish  to  gratify  their 
vanity  by  pretending  to  be  able  to  buy  goods  they  cannot 
afford.  The  campaign  against  this  abuse  has  little  value 
unless  the  salesmen  are  thoroughly  enlisted  and  unless  they 
come  to  see  that  by  forcing  goods  on  customers  they  defeat 
the  attempt  to  remedy  a  serious  evil. 


"Reselling  the  House" 

What  the  salesman  can  accomplish  in  resale  after  delin- 
quency, will  be  suggested  to  him  by  Chapters  VH-XHI.  As 
the  100  per  cent  representative  of  his  house  he  can  echo  the 
resale  policy  laid  down  by  the  credit  and  collection  depart- 
ment. 

Adjusting  Grievances 

When  a  customer  is  slow  in  payment  and  resents  the 
collection  methods  employed,  the  fault  does  not  always  lie 
with  him  and  with  the  salesman.     The  reputation  for  hard- 
hearted inflexibility  fixed  upon  the  credit  manager's  much- 
enduring  head  is  sometimes  deserved.     No  educational  cam- 
paign or  set  of  executive  orders  can  prevent  an  intelligent 
salesman  from  siding  with  an  abused  customer  against  the 
credit  manager  who  has  made  arbitrary  or  careless  rules,  or 
who  in  his  collection  methods  shows  no  understanding  of  the 
customer's   position.      But   where   wise   poUcies   have   been 
adopted  and  have  been  thoroughly  explained  both  to  the 
salesman  and  to  the  customer,  then  they  can  see  that  the 
credit  and  collection  departments  are  playing  the  role  of  con- 
structive merchandisers,   eager  to  help  the  retailer  do  the 
largest   business   consistent    with   sound   policy.      Then   the 
salesman  becomes  a  loyal  aid  to  the  manager  and  can  be 
relied  on  both  to  educate  customers  to  pay  and  to  adjust 
grievances  that  arise  with  the  credit  and  collection  depart- 
ment. 

Constructive  Credit 

The  salesman  who  is  interested  in  constructive  credit  will 
find  Chapters  XXVH  and  XXVIII  full  of  suggestions.  A 
large  part  of  the  good  salesman's  work  has  always  been  not 
only  to  sell  the  customer  goods  but  to  show  him  how  to  sell 
the  goods. 


I20 


NEW   COLLECTION   METHODS 


CO-OPERATION   WITH   SALES   DEPARTMENT         121 


Watching  the  Customer 

"Vigilantia"  is  the  watchword  of  the  National  Asso- 
ciation of  Credit  Men,  and  vigilance  must  still  be  the  key- 
note of  the  effort  of  the  salesman,  when  watching  the  cus- 
tomer's character,  capacity,  and  capital.  His  ear  must  be 
alert  to  catch  the  first  rumblings  of  future  bankruptcy  and 
to  protect  the  interests  of  his  house. 

While  this  is  the  salesman's  first  duty,  it  is  not  his  chief 
opportunity.  It  is  the  negative  rather  than  the  positive 
aspect  of  his  task  in  keeping  his  eye  on  the  customer's 
credit.  The  waste  resulting  from  lost  collections,  from 
money  charged  off  the  books,  is  small  compared  with  the 
waste  resulting  from  the  failure  to  take  advantage  of 
business  openings,  to  enlarge  trade  outlets,  to  build  up  better 
business  by  studying  local  opportunities  and  taking  advan- 
tage of  them. 

The  salesman  is  naturally  eager  to  sell  goods;  he  knows 
that  the  credit  department  is  naturally  eager  to  reduce  the 
line  of  a  merchant  who  is  in  difficulty.  When  the  salesman 
makes  up  his  mind  that  the  credit  and  collection  depart- 
ments are  builders  of  business  and  are  eager  to  enlarge  the 
line  of  credit  of  a  deserving  merchant,  then  the  salesman 
in  turn  will  be  more  interested  in  keeping  vigilant  watch  on 
a  poor-pay  customer.  His  own  interest  is  equally  concerned 
in  both  matters. 

Advising  as  to  Collection  Methods 

A  common  part  of  the  salesman's  duty  when  gathering 
information  is  to  discover  what  method  of  collection  of  the 
payment  the  customer  prefers.  The  collection  department 
usually  keeps  notations,  based  on  their  experience  with  in- 
dividuals, of  the  methods  which  have  proved  most  effective 
in  each  case.  In  gathering  these  notations  the  salesman  can 
be  of  service.     His  opportunity  is  not  limited  to  making  a 


pencil  mark  opposite  the  line  "Does  not  pay  draft,"  but 
through  his  personal  acquaintance  with  the  customer  he  can 
suggest  the  most  effective  line  of  approach.  The  salesman 
who  has  an  insight  into  resale  methods  and  the  psychology 
of  collections  as  suggested  in  this  book,  is  not  obliged  to  invent 
collection  methods,  a  field  in  which  he  is  not  supposed  to  be  a 
specialist,  but  has  merely  to  suggest  which  method  is  the  best. 
The  salesman's  advice  on  this  delicate  subject  must  of  course 
be  discounted  in  view  of  his  natural  tendency  to  leniency 
toward  the  customer. 

The  Salesman  as  Collector 

The  salesman's  great  asset  in  collections  is  his  personal 
contact  with  his  customers,  which  allows  the  give-and-take 
of  conversation  that  letters  can  never  quite  equal.  Moreover, 
he  embodies  for  the  customer  the  idea  of  constructive 
business,  so  that  his  advice  as  to  the  relation  between  prompt 
pay  and  good  business  is  likely  to  fall  on  receptive  ears.  "I 
want  you  to  pay  this  money,"  the  salesman  says,  "so  that 
I  can  sell  you  more  goods,  for  certainly  I'm  not  going  to 
get  you  into  trouble  by  loading  you  up  with  too  heavy  an 
outstanding  indebtedness.  In  the  long  run  that  would  hurt 
you  far  more  than  for  me  to  press  you  for  payment  now." 

If  collections  are  to  be  regarded  as  a  stern  enforcement 
of  the  law,  then  the  salesman  makes  a  poor  collector,  for 
the  reason  that  the  retailer  regards  the  salesman  as  an  expert 
on  sales;  he  expects  him  to  have  enthusiasm  and  anticipates 
being  inspired  by  his  enthusiasm.  If  he  comes  to  look  on 
the  salesman  as  a  man  who  makes  trouble  for  him  when 
payment  is  slow,  he  will  be  less  willing  to  buy  from  him; 
his  morale  as  a  captain  in  the  merchandising  army  will  be 
badly  shaken,  and  he  will  have  less  courage  in  attacking  his 
share  of  the  volume  of  goods  to  be  distributed. 

But  if  collection  is  resale,  then  the  salesman  can  render 


122 


NEW    COLLECTION    METHODS 


assistance  in  collection.  Then  the  collector  and  the  salesman 
both  use  the  skilful,  tactful  approach;  then  the  collector 
appeals  not  to  fear  only,  but  to  pride,  loyalty,  self-interest, 
and  other  motives  which  feature  also  in  making  sales;  then 
both  have  as  their  primary  object,  whether  in  collection  or 
sales,  the  desire  to  "keep  the  customer."  Whether  the  sales- 
man is  securing  credit  information  as  the  basis  of  the  first 
order,  or  is  educating  the  customer  as  to  terms,  or  is  collect- 
ing difficult  accounts,  or  is  performing  any  other  of  the 
functions  just  outlined,  he  will  be  most  successful  when  he 
"sells"  credit  or  "sells"  prompt  payment.  It  is  natural  for 
him  to  appeal  to  pride  and  self-interest.  This  he  can  do  on 
the  occasion  when  his  services  are  asked  in  making 
collections. 

A  Friendly  Letter  that  Brought  a  Reply 

The  credit  manager  for  a  jobbing  house  has  in  his  files 
a  memorandum  which  runs  as  follows: 

"A  few  weeks  ago  Mr.  Jones  asked  salesman  H.  A. 
Wahl  to  prod  one  of  his  customers  into  paying  us  some 
money.  Mr.  Wahl  thereupon  wrote  what  strikes  me  as  an 
inoffensive  but  effective  letter.  It  resulted  in  an  immediate 
response  to  our  several  unanswered  communications. 

Dear  Sir: 

I  have  not  had  the  pleasure  of  calling  on  you  for  some  time 
owing  to  the  fact  that  you  are  considerably  behind  with  us.  I  have 
before  me  a  copy  of  the  letter  sent  you  October  6  and  in  it  I  find 
that  you  have  not  replied  to  any  of  the  former  letters  we  sent  you. 
You  know  the  feeling  you  would  have  for  one  of  your  customers 
who  would  not  pay  any  attention  to  the  letter  you  sent  him.  He 
would  have  some  excuse,  not  being  versed  in  business  methods.  But 
you  are  a  business  man,  and  I  cannot  explain  to  the  house  your  not 
answering. 

Since  the  past-due  bills  date  back  to  January,  I  believe  you 
will  agree  with  me  that  our  company  has  extended  you  more  than 
ordinary  business  courtesy,  and  that  they  are  certainly  entitled  to  the 
$160.07  covering  your  past-due  account. 


CO-OPERATION    WITH    SALES    DEPARTMENT  123 

I  enclose  addressed  envelope.  Please  write  me  by  return  mail 
regarding  your  account.  At  the  same  time  I  would  suggest  that 
you  mail  direct  to  the  house  the  amount  stated  above,  as  their  letter 
to  me  takes  a  very  firm  stand. 

With  kindest  regards. 

Your   friend, 

"Memo.  Retain  the  foregoing  as  a  form  and  when  we 
ask  a  salesman  for  like  assistance  send  him  this  letter  by 
way  of  suggestion." 

Persuading  Salesman  to  Co-operate 

When  salesmen  are  compensated  on  a  point  basis,  special 
points  can  be  given  them  for  selling  old  customers  and 
cutting  down  the  turnover  of  trade;  for  a  good  showing  in 
collections  from  their  territory;  for  low  percentage  of  can- 
cellations ;  and  for  low  percentage  of  turned-down  orders.  A 
contest  on  any  or  all  of  these  points,  and  the  list  of  win- 
ners printed  in  the  house  organ;  or  a  chart  regularly  kept 
on  the  wall  of  the  manager's  office  showing  the  relative 
standing  of  salesmen  in  these  matters,  will  go  a  long  way 
toward  developing  enthusiastic  co-operation. 

The  sales  collection,  the  house  organ,  and  special  bulletins 
to  salesmen  are  the  best  mediums  for  proving  to  the  sales- 
man how  he  is  helped  by  the  credit  manager  and  his  staff. 

Armed  with  figures  and  anecdotes  of  experience,  a  force- 
ful credit  manager  stood  up  at  a  sales  convention  and  won 
over  the  entire  sales  force  to  a  belief  in  the  need  for  careful 
collection.  His  chief  argument,  supported  by  case  after 
case,  was  that  where  a  customer  owed  money,  he  would  not 
see  the  salesman,  his  orders  went  elsewhere,  and  the  sales- 
man lost  percentages.  In  one  case  where  an  account  had 
been  outstanding  for  several  months  and  the  salesman  could 
not  sell  the  retailer  because  of  the  unpaid  bill,  conference 
with  the  credit  manager  resulted  in  the  suggestion  of  instal- 
ment payments  each  week.    Then  the  account  was  paid  with- 


V' 


124 


NEW   COLLECTION    METHODS 


I    i 


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1 

lit 


out  trouble,  and  the  retailer  at  once  placed  his  new  orders. 

As  was  said  at  the  beginning  of  the  chapter,  the  responsi- 
bility for  education  of  the  salesman  lies  with  the  credit 
department.  Salesmen  are  naturally  inclined  to  believe  that 
if  the  credit  man  were  not  so  unreasonably  strict,  he  would 
extend  a  delinquent  customer  a  little  more  time  and  a  little 
more  credit  and  allow  the  salesman  to  sell  another  bill  of 
goods.  The  credit  man  sees  that  this  is  dangerous  heresy, 
but  he  forgets  that  the  salesman's  mind  is  concentrated  on 
other  problems.  It  is  his  function  as  a  specialist  to  help  the 
salesman  to  see  things  from  his  point  of  view.  The  truths 
he  has  to  utter  continuously  about  the  dangers  of  over- 
stocking, and  the  advantages  of  quick  turnover  and  prompt 
pay  are,  it  is  true,  obvious,  but  what  is  obvious  to  a  man 
in  one  department  may  seldom  occur  to  the  man  in  another. 

Whenever  an  instance  occurs  to  show  how  increased 
business  or  the  prevention  of  loss  has  resulted  from  co- 
operation between  the  sales  and  the  credit  departments,  the 
managers  of  both  departments  should  note  the  instance  in 
their  files  for  the  information  of  their  organization.  At  each 
sales  convention,  let  the  salesman  have  a  regularly  appointed 
visit  with  the  credit  manager,  just  as  he  has  with  the  sales 
and  advertising  manager.  Credit  information  should  be  put 
into  the  sales  manual.  The  salesman  should  be  called  into 
consultation  in  case  of  a  difficult  credit  to  see  whether  there 
is  some  basis  on  which  shipment  can  be  made,  and  to  see 
also  whether  the  customer  can  be  brought  on  a  full  credit 
basis.  Carbon  copies  of  the  letters  from  the  credit  depart- 
ment to  customers  should  be  sent  the  salesman,  and  in  every 
way  he  should  be  kept  in  touch,  while  he  is  on  his  route, 
with  the  standing  of  the  customer's  account. 

Proper  co-operation  between  sales  and  credit  results 
naturally  from  understanding  the  place  of  collection  in  the 
marketing  plan. 


CHAPTER    XV 


THE  PSYCHOLOGY  OF  COLLECTION 

Science  Confirms  Business  Experience 

The  wise  credit  and  collection  man,  like  the  wise  sales- 
man, has  always  studied  his  customers,  their  habits  of  living, 
of  buying,  of  paying,  of  thinking.  He  has  studied  his 
business  also  in  relation  to  his  customers  as  to  the  effect  it 
produces  on  their  habits  of  living,  of  buying,  of  paying,  of 

thinking. 

This  is  the  study  of  collection  psychology.  Psychology 
is  merely  the  science  of  mental  operations,  that  is,  the  study 
of  the  way  the  mind  of  the  average  person  works.  It  has 
rendered  great  service  to  business,  because  men  of  trained 
analytic  power  have  examined  a  large  number  of  cases  and 
have  decided  on  a  number  of  definite  principles.  This  is 
precisely  the  constant  practice  of  the  skilled  credit  or  col- 
lection man,  and  for  that  reason  he  has  welcomed  the  aid  of 
the  scientist.  In  solving  the  problem  of  selecting  from  many 
possible  steps  the  most  effective  one,  science  has  pointed  out 
the  power  of  habit,  the  importance  of  securing  and  holding 
attention,  the  value  of  appeals  to  instincts  and  emotions  to 
which  nearly  all  men  respond  automatically,  and  the  value 
of  suggestion  which  sets  the  reader's  own  imagination  to 
work.  The  psychologist  affirms  that  in  appraising  the  value 
of  these  matters  his  laboratory  tests  re-enforce  the  ex- 
perience of  the  business  man. 

Appealing  to  Established  Ideas 

Above  all,  psychology  emphasizes  the  value  of  appealing: 

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126 


NEW   COLLECTION   METHODS 


THE  PSYCHOLOGY   OF  COLLECTION 


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to  established  ideas.     Certain  ideas  are  much  more  firmly 
planted  in  our  minds  through  long  custom  and  use  than  are 
others.     The  merest  reference  to  them  will  awaken  associa- 
tions and  memories  that  stir  us  powerfully.    The  student  of 
sales  psychology  observes  that  the  interest  of  most  men  in 
their  health,  in  their  loved  ones,  their  homes,  their  success, 
their  desire  to  make  money  or  to  save  it,  has  always  been 
strong.    Their  minds  are  stored  with  memories  of  acts  they 
have  performed  because  of  these   interests.      Consequently 
even  a  suggestion  of  these  interests  moves  them  strongly 
towards  action.     Indeed  indirect  suggestion  may  be  more 
effective  than  open  discussion.    The  latter  may  arouse  opposi- 
tion, while  in  the  case  of  the  former,  action  may  follow  with- 
out the   realization   that  he  has   responded   to  any   stimu- 
lus outside  his  own  mind.     He  believes  he  has  acted  chiefly 
on  his  own  initiative,  almost  unaware  that  he  has  been  skil- 
fully persuaded  to  act.    In  the  language  of  the  salesman,  he 
thinks  he  has  "sold  himself,''  instead  of  "being  sold." 

Likewise  the  student  of  collection  psychology  learns  to 
appeal  to  established  ideas.  He  studies,  first  of  all,  the  men- 
tal operation  of  the  man  who  is  asked  to  pay  a  bill,  to  dis- 
cover the  usual  trend  of  his  thought  so  as  to  work  with  it 
rather  than  against  it.  This  has  been  discussed  in  Chapter  V, 
"Using  the  Principle  of  Resale."  Next  he  studies  his  customers 
to  see  whether  there  are  any  other  motives  on  which  they  are 
accustomed  to  act,  which  he  can  use  in  collection.  Such  a 
motive  as  local  pride,  for  instance,  may  never  have  been  en- 
tered the  customer's  mind  in  connection  with  his  payment, 
but. this  does  not  mean  that  the  collection  man  cannot  make 
use  of  it. 

Establishing  Impressions  of  Service 

Finally  he  goes  over  the  whole  field  of  the  relation  be- 
tween his  house  and  the  customer,  analyzing  it  to  find  the 


m 


i-i 


128 


NEW   COLLECTION   METHODS 


THE  PSYCHOLOGY  OF  COLLECTION 


129 


p  -^A< 


■II 


"established  ideas,"  established  by  every  year  and  every  day 
of  their  business  dealings.  He  realizes  that  the  established 
ideas  which  are  of  use  to  him  in  collection  are  associated  in 
the  customer's  mind  with  the  values  of  goods,  service,  and 
credit.  This  was  discussed  in  Chapter  VII,  "Selling  and  Re- 
selling Credit."  And  if  an  honest  review  of  his  customer's 
relations  shows  him  that  these  values  are  not  well  planted  as 
established  ideas  in  the  minds  of  his  customers,  he  deter- 
mines that  he  will  plant  them  there  by  selling  credit  in  good 
earnest  in  the  future. 

The  use  of  collection  psychology  does  not  in  the  least 
interfere  with  the  writing  of  "real"  letters  full  of  the  per- 
sonal tone.  Above  all  other  kinds,  the  ultra-confidential  type 
of  correspondence  dealing  with  credit  must  have  a  personal 
quality.  A  labored  and  artificial  use  of  collection  appeals 
either  in  conversation  or  letters  will  never  accomplish  results. 
The  chart  on  page  126  is  not  to  be  followed  slavishly. 

Psychology  in  an  Interview 

Suppose  that  the  credit  manager  is  receiving  a  call  from 
John  Jones  of  Peoria,  who  has  overbought  heavily,  has  been 
unable  to  pay  for  his  invoices,  and  has  in  consequence  found 
his  orders  for  new  goods  cut  down  by  the  credit  man.  In 
this  interview  Mr.  Jones  is  going  to  hear  some  plain  truths 
about  overbuying,  and  he  will  be  told  that  the  decision  of  the 
house  is  final  against  shipping  the  orders  in  the  full  dimen- 
sions that  were  put  down  by  the  salesman  when  he  visited 
Peoria.  But  the  credit  manager  has  made  up  his  mind  that 
he  is  going  to  make  Jones  "feel  all  right  about  it"  when  their 
little  talk  is  over.  He  finds  out  that  Jones  has  been  trading 
with  his  house  for  six  years,  and  that  his  business  in  that  time 
has  amounted  to  several  thousand  dollars.  Jones  is  a  fine 
fellow  personally  and  conducts  a  good  store.  Also  he  comes 
from  a  good  town  in  a  good  state.    "I  shall  show  him  that  I 


like  him,"  thinks  the  credit  manager,  "and  that  we  appre- 
ciate his  business."  In  other  words,  he  will  make  liberal  use 
of  the  appeal  to  pride.  It  will  be  accident  insurance  too,  if 
Jones  happens  to  be  angry. 

Jones's  mind  is  fixed  on  two  things:  the  letter  he  received 
telling  him  his  orders  could  not  be  shipped,  and  the  money 
he  is  going  to  lose  by  not  having  those  goods  to  sell  at  the 
right  time.  So  the  manager  determines  to  side-track  any  talk 
about  that  letter,  if  possible,  until  Jones  is  in  a  more  friendly 
mood ;  and  he  determines  to  make  Jones  see  that  he  will  lose 
more  money  by  overbuying  and  allowing  goods  to  grow  stale 
on  his  shelves  than  he  will  by  ordering  less  than  he  really 
needs  and  then  reordering,  provided  the  state  of  his  account 
makes  reordering  allowable.  In  other  words,  if  the  credit 
man  can  succeed  in  making  Jones  believe  that  he  is  really  in- 
terested in  the  latter's  welfare,  he  will  appeal  strongly  to  his 
self-interest  through  the  money-making  instinct.  Also  the 
credit  man  decides  that  this  situation  is  not  going  to  happen 
again  with  Jones  if  he  can  help  it.  He  is  going  to  make  him 
understand  the  position  of  the  house  and  will  remind  him, 
gently  but  firmly,  of  the  many  letters  they  have  exchanged 
on  this  subject  during  the  last  three  years.  The  problem  is 
how  to  do  this  without  making  Jones  "sore." 

If  the  credit  man  is  possessed  of  the  supertact  that  every 
man  in  his  position  ought  to  have,  he  will  so  manage  that  in- 
terview that  Jones  will  not  feel  that  he  has  been  lectured  like 
a  schoolboy  and  taught  his  A  B  C's,  or  that  the  credit  man 
is  "butting  in,"  and  "trying  to  run  his  business."  Not  at  all. 
When  the  glass  door  of  the  office  closes  behind  Mr.  Jones, 
that  gentleman  will  return  to  Peoria,  proud  of  being  taken 
into  the  credit  man's  confidence  and  of  being  shown  the  inner 
workings  of  a  credit  business  of  great  magnitude ;  proud  too, 
of  being  one  of  a  comparatively  small  number  of  men,  who 
in  the  judgment  of  this  experienced  merchandiser,  are  able 


li  { 


I 


i 


130 


NEW   COLLECTION   METHODS 


THE  PSYCHOLOGY  OF  COLLECTION 


131 


to  appreciate  and  to  apply  to  the  running  of  their  stores  the 
underlying  principles  of  this  line  of  business. 

He  is  perhaps  a  trifle  ashamed  of  himself,  as  he  sits  in 
the  parlor  car  southward  bound,  but  he  is  uplifted  by  a  due 
confidence  in  himself,  and  he  is  thinking  over  those  plans  for 
reducing  his  stock,  which  in  conference  with  the  sales  mana- 
ger have  been  worked  out  to  meet  his  exact  problem.  And 
the  final  thought  of  Mr.  Jones  is,  "Smith  and  Company  cer- 
tainly do  believe  in  treating  people  right." 

What  Appeals  Were  Used? 

This  incident,  imaginary,  but  nevertheless  typical,  shows 
the  credit  manager  in  his  role  of  selling  credit.  He  has  won 
success  in  this  case  by  a  study  of  his  customer's  psychology, 
by  appealing,  above  all,  to  his  pride  and  his  self-interest  or 
his  desire  to  make  money,  by  appealing  a  little  to  his  shame, 
a  little  to  his  sense  of  fear,  a  great  deal  to  his  good-will  and 
his  sense  of  fair  play,  perhaps  somewhat  also  to  his  local 
pride.  He  has  concentrated  Jones's  mind  on  the  desired  ideas 
and  has  avoided  emphasis  on  any  ideas  that  would  conflict 
with  the  action  he  wishes  Jones  to  take.  Finally  he  has  made 
that  action  easy  for  Jones  and  has  linked  it  with  a  powerful 
appeal  to  good-will  by  showing  him  a  good  way  to  reduce 
his  stock  and  his  present  indebtedness  at  the  same  time. 

Psychology  in  a  Retail  Credit  Interview 

Or  let  us  examine  the  use  of  collection  psychology  made 
by  a  retail  merchant  in  talking  with  a  slow-paying  customer 
coming  into  the  store.  "Will  you  let  me  have  something  on 
account,  Mr.  Robinson?  You  know  that  account  of  yours 
has  been  running  along  quite  a  while  now,  and  I  really  ought  to 
clear  my  books.  We  merchants  have  got  to  keep  our  expense 
of  doing  business  down  as  low  as  possible  these  days  with 
prices  so  high,  or  else  we  shall  have  to  mark  up  the  prices 


on  our  goods.  The  people  we  buy  from  are  pressing  us  harder 
all  the  time  and  weVe  got  to  keep  them  paid  up  or  else  we 
won't  be  able  to  get  the  best  class  of  goods,  and  to  give  the 
kind  of  service  we  like  to  show  our  customers.  I  tell  you, 
running  a  retail  store  is  pretty  much  of  a  science  nowadays, 
and  you  have  to  watch  every  penny. 

"Also  we  are  trying  to  put  in  improvements  all  the  time 
to  show  our  appreciation  of  the  good  trade  we  get,  and  that 
costs  money  too.  How  did  you  like  those  new  display  cases? 
WeVe  got  it  figured  out  now  so  the  customers  can  come  in 
here  and  look  at  the  goods  themselves  without  having  all  sorts 
of  counters  in  the  way.  It's  more  sanitary  too,  to  have  these 
tables,  because  dirt  doesn't  collect  behind  them  and  there  is  no 
place  where  a  lazy  clerk  may  put  odds  and  ends  of  things 
away. 

"I'll  tell  you  another  thing,  Mr.  Robinson.  What  I'm  afraid 
of  is,  that  unless  I  get  that  account  paid  up,  you'll  stop  doing 
business  here.  I  don't  want  you  thinking  about  the  account 
every  time  you  come  into  the  store.  I  just  want  you  to  think 
that  this  is  the  place  where  you  like  to  do  your  buying,  be- 
cause you  find  the  goods  you  want  and  the  clerks  give  you 
attentive  service.  And  if  you  want  to  ask  about  anything 
or  if  there  are  any  of  our  goods  that  aren't  giving  satisfac- 
tion, I  want  you  to  feel  like  coming  and  talking  it  over  with 
me  personally  and  giving  me  a  chance  to  do  the  right  thing 
by  you.  If  you  could  give  me  ten  dollars  on  account  right 
now  and,  say,  half  of  the  balance  of  it  on  the  first  of  the 
month,  and  the  rest  on  the  first  of  the  next  month,  we'd  get 
it  all  cleaned  up  without  giving  you  any  inconvenience.  All 
right,  Mr.  Robinson,  thank  you,  sir."  And  then  he  changes 
the  subject 

This  typical  interview  bristles  with  "appeals  to  pride  and 
self-interest,"  and  "resells"  the  customer  in  such  a  way  as 
to  make  him  a  thousand  per  cent  better  patron  of  the  store. 


!  * 


132 


NEW  COLLECTION  METHODS 


r  I 


Psychology  in  Handling  "Dead-Beats" 

The  merchant,  whether  wholesaler  or  retailer,  who  dis- 
covers too  late  that  he  has  sold  goods  to  someone  who  comes 
perilously  near  to  being  in  the  dead-beat  class,  or  the  collector 
or  attorney  who  has  to  approach  a  person  of  this  type,  is 
easily  persuaded  of  the  value  of  collection  psychology  for  this 
particular  task.  The  appeal  to  fear  is  the  most  potent  in 
such  cases,  but  how  shall  this  appeal  be  managed  ?  The  poor- 
pay  customer  is  not  easily  frightened.  He  is  either  sufficiently 
callous  by  nature  or  indifferent  through  experience,  so  as  to 
be  unmoved  by  ordinary  collection  appeals.  The  collector 
who  can  thoroughly  understand  this  type  of  mind,  who  can 
outguess  it  and  surprise  it,  will  be  able  to  score  a  victory  where 
others  have  failed.  Frankness  without  bluster;  swift  and 
determined  advance  from  stage  to  stage  of  the  collection  pro- 
cedure; occasional  appeals  to  pride  or  self-interest  while  the 
stem  pressure  of  the  appeal  to  fear  is  relaxed  for  the  mo- 
ment; these  methods  convince  the  tough-minded  delinquent 
that  he  has  met  his  master  and  that  to  resist  payment  further 
will  be  too  expensive. 

Psychology  in  Letters 

To  utilize  these  collection  appeals  in  correspondence  is 
no  more  difficult  than  to  use  them  in  an  interview.  The  let- 
ter-writer must  judge  of  the  situation,  fix  his  mind  on  the 
end  to  be  attained,  canvass  the  means  at  his  disposal  for  at- 
taining that  end,  and  then  write  the  letter  much  as  he  would 
conduct  the  interview,  except  that  the  letter  will  be  vastly 
briefer.    (  See  Chapters  XIX  and  XXXIX. ) 

As  a  matter  of  fact,  the  phrases  and  ideas  which  have 
proved  successful  in  collection  correspondence  have  in  nearly 
every  case  been  adapted  from  personal  interviews.  Inciden- 
tally, it  does  not  pay  to  make  a  collection  interview  long- 
winded,  any  more  than  to  write  long  collection  letters. 


I 


THE  PSYCHOLOGY  OF  COLLECTION 


133 


The  Personality  Behind  the  Appeal 

It  makes  a  difference  who  uses  the  collection  appeal.  The 
bookkeeper,  for  instance,  typifies  a  definite  routine  and  clock- 
like regularity.  He  personifies  the  accuracy  back  of  the  ledger 
record  which  makes  certain  that  shallow  claims  of  discrep- 
ancy will  be  promptly  refuted.  He  personifies,  also,  the 
mechanical  advancement  of  the  collection  process.  If  he  says, 
"This  account  will  be  handed  to  the  collection  department  in 
ten  days,"  or  to  the  credit  manager,  as  the  case  may  be, 
the  delinquent  knows  that  it  is  useless  to  attempt  to  stay  that 
action.  A  bookkeeper's  duties  are  performed  according  to 
the  orders  of  his  superior  officers,  and  appeals  to  him  will 
have  no  effect.  A  letter  issued  by  the  bookkeeper  and  signed 
with  the  company's  name,  without  the  bookkeeper's  name, 
may  appeal  by  suggestion  to  pride  or  good-will,  etc.  In  such 
cases  these  letters  typify  the  house  in  its  general,  impersonal 
relation  and  usually  produce  a  definite  effect. 

If  the  credit  manager  in  person  signs  a  letter,  the  com- 
munication then  typifies  the  house  in  its  personal  relation  with 
the  customer.  The  manager's  greater  authority  invests  with 
more  force  any  appeal  which  his  letter  contains.  An  appeal 
to  pride  made  by  the  bookkeeper,  or  an  attorney,  or  a  collec- 
tion agency  whose  only  interest  is  in  getting  the  money, 
though  it  has  effect,  produces  less  than  an  appeal  from  an 
official  of  influence  and  prestige.  No  man's  good  opinion  of  us 
is  contemptible,  but  the  good  opinion  of  the  mighty  is  worth 
more  as  an  incentive  to  our  actions.  An  appeal  to  self-in- 
terest, an  offer  of  service  or  leniency,  comes  with  more  force 
from  an  officer  who  has  the  authority  to  dispense  substantial 
favors.  The  salesman,  too,  has  his  peculiar  value  as  the 
source  of  collection  appeals.  (See  page  121.)  Above  all  it 
must  be  noticed  that  all  varieties  of  the  resale  argument  come 
with  infinitely  more  force  from  the  house  itself  than  from 
any  outside  agency  of  collection. 


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NEW   COLLECTION    METHODS 


THE  PSYCHOLOGY   OF  COLLECTION 


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The  "Tone"  of  the  Appeal— Diplomacy 

Not  only  is  there  a  difference  in  "who  makes  the  appeal" 
but  also  in  "how  it  is  made."  "Young  collection  men,"  said 
an  experienced  manager,  "are  almost  always  too  severe  in  the 
way  they  turn  a  man  down  or  try  to  collect  money.  The  col- 
lection cocktail  they  compound  has  too  much  bitters  in  it.  A 
skilful  dash  of  the  appeal  to  fear,  mixed  with  a  large  pro- 
portion of  appeals  to  pride  and  self-interest,  makes  the  right 
combination  in  most  cases." 

A  credit  manager  said  to  one  of  his  assistants  before  an 
interview  with  a  patron  from  out  of  town,  "Fm  going  to  scare 
this  fellow  a  little."  But  the  way  he  did  it  was  a  revelation 
in  tact  to  the  assistant.  Real  sympathy  and  understanding  of 
the  case  and  genuine  desire  to  be  of  service,  together  with  a 
definite  knowledge  of  just  how  far  to  go  in  standing  up  for 
the  creditor's  rights,  are  necessary  if  one  is  to  gage  success- 
fully the  amount  of  pressure  or  leniency  to  be  accorded  in  any 
individual  instance.  The  heavy-footed,  tactless  man  of  dull 
perceptions  and  slow  sympathies  makes  a  poor  wielder  of 
collection  appeals.  Clumsy  appeals  to  good-will  may  become 
meaningless  flattery,  which  forfeits  the  delinquent's  respect, 
encourages  him  to  resist  payment,  and  makes  it  necessary  to 
use  severe  methods,  which  in  turn  will  forfeit  his  good-will. 
The  collection  man  is  a  diplomat  of  business,  dealing  with 
very  delicate  matters,  and  the  heavy-footed  diplomat  is  a 
veritable  bull  in  a  china-shop.  Here  again  the  advantage 
lies  entirely  with  the  house  which  makes  its  own  collections, 
because  the  usual  collector,  accustomed  to  deal  chiefly  with 
tough  cases,  is  in  most  instances  a  poor  diplomat.  Of  course 
there  is  no  reason  why  the  outside  collector  cannot  be  a  skilled 
and  successful  handler  of  collections  in  the  early  stages  of 
delinquency.  And  it  is  very  often  true  that  he  has  more  skill 
and  tact  than  the  collection  department  of  the  creditor  house, 
simply  because  he  has  made  more  careful  study  of  collections. 


Methods  Useful  in  Any  Business 

Most  collection  appeals  find  their  way  sooner  or  later  into 
letters,  partly  because  nine-tenths  of  all  business  is  done  by 
letters,  partly  because  business  men  are  constantly  learning 
to  write  better  letters.  Accordingly,  in  the  following  dis- 
cussion of  collection  appeals,  a  very  extended  analysis  has 
been  made  of  letters  and  forms  of  all  kinds,  as  well  as  of 
word-of-mouth  arguments  and  appeals  used  by  collection  men 
in  every  line  of  business.  It  would  be  highly  illuminating 
if  it  were  possible  to  write  down  the  names  of  firms  and 
individuals,  in  every  case,  who  have  used  the  material  given 
herewith.  If  this  record  could  be  presented  it  would  go  far 
to  prove  the  statement  that  the  underlying  principles  of  all 
business  are  identical,  for  in  an  indefinite  number  of  cases 
the  same  method  has  been  employed  by  firms  of  entirely  dif- 
ferent lines  of  business  and  with  every  complexion  and  shade 
of  collection  problems.  The  difference  lay  in  the  procedure 
of  these  houses,  that  is  to  say,  in  the  stage  of  the  collection 
program  at  which  they  used  these  various  methods  and  ap- 
peals, in  the  number  of  letters  issued,  the  general  tone  and 
style  adopted,  and  the  length  of  time  allowed  to  elapse  before 
proceeding  to  severe  measures. 

In  general  the  research  undertaken  in  the  preparation  of 
this  book  indicates  plainly  that  the  most  skilful  and  consistent 
use  of  collection  appeals  is  being  made  by  those  houses  which 
are  endeavoring  to  educate  their  customers  in  living  up  to 
the  terms  laid  down  and  to  reduce  their  overdue  outstand- 
ing indebtedness  without  forfeiting  the  good-will  of  their 
trade. 

The  moral  would  seem  to  be  that  every  collection  method 
should  be  known  to  a  credit  or  collection  man,  because  while 
he  may  not  be  able  to  use  it  precisely  as  someone  else  does, 
he  may  be  able  to  change  and  adapt  it  to  some  situation  in 
his  own  collection  problems. 


li 


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136 


NEW   COLLECTION    METHODS 


THE  PSYCHOLOGY  OF  COLLECTION 


137 


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Advantage 


Requisites  of  a  Good  Collection  Letter 

Every  collection  letter  should  get  the  attention  of  its  read- 
ers. It  should  use  the  power  of  habit.  It  should  always  en- 
deavor to  secure  action. 

In  all  his  efforts  the  collection  man  should  arouse  respect. 
He  should  show  fairness  in  every  step. 

All  his  appeals  to  cus- 
tomers are  expressed  in 
the  two  terms,  obliga- 
tion and  advantage.  The 
former  lies  in  the  back- 
ground during  the  entire 
collection  procedure,  be- 
coming more  important 
as  it  goes  on,  but  not 
omitted  even  at  the  be- 
ginning; the  latter  is 
more  important  at  the  be- 
ginning, yielding  place  to 
obligation  towards  the 
end. 

In  the  earliest  stages  of 
his  procedure,  he  can 
appeal    to    pride,    either 


Duty 


Obligation 


-preserva- 
tion 1 


AdvanUge   yields   to    obligation   as   the   pro-  OCrSOnal,      loCal,      Of     SeC- 

cedure  advances.     (Read  from  top  to  bottom.)  * , 

tional ;  to  self-interest 
through  the  resale  of  credit  or  goods;  to  savings,  expressed 
in  the  desire  for  discount;  and  to  good-will  and  co-operation. 
Appeals  which  begin  to  imply  a  trifle  more  of  duty  and 
a  trifle  less  of  advantage  are  those  to  good  nature  and  the 
sense  of  fairness  or  fair  play  in  the  customer.  In  a  class  by 
itself  is  the  appeal  to  the  desire  to  avoid  annoyance,  in  which 
duty  and  advantage  are  almost  equally  blended.  Then  come 
appeals  to  shame  and  fear;  in  this  connection  it  is  sometimes 


possible  to  use  curiosity  and  family  affection.  Under  certain 
circumstances  appeals  can  be  made  to  the  sense  of  honesty — 
which  must  not  be  confused  with  pride, — and  to  savings  ex- 
pressed through  the  desire  to  avoid  the  cost  of  certain  collection 
methods,  or  acquisitiveness  through  the  desire  for  some  dis- 
count or  bonus  given  for  closing  up  an  overdue  account.  The 
desire  for  success  may  be  appealed  to  in  varying  forms  at  vary- 
ing stages  of  the  procedure. 

Emotions  carefully  to  be  avoided  are  anger,  which  arouses 
opposition  and  delays  the  payment;  and  pity,  which  destroys 
the  sense  of  respect  and  fear,  because  the  person  who  feels 
pity  has  less  feeling  of  duty  or  obligation  to  the  object  of  his 
pity.    Contempt  must  be  avoided  for  the  same  reason. 

Through  employment  of  variety,  he  must  use  the  principle 
of  surprise  and  impulse. 

Attention  Value 

Especially  in  collecting  petty  accounts  or  in  dealing  with 
careless  debtors,  attention  value  is  important  in  the  collection 
procedure.  A  letter,  being  more  personal,  gets  more  atten- 
tion than  a  statement.  But  there  are  many  ways  of  giving 
attention  values  to  the  statements  or  even  to  the  invoice.  Ex- 
planation of  terms  in  simple  language  and  in  type  large 
enough  to  be  easily  read,  set  apart  from  other  printed  matter, 
makes  the  terms  hard  to  overlook.  On  a  second  statement 
these  can  be  printed  in  red  ink  or  on  a  printed  card  calling 
attention  to  them.  A  reminder  printed  at  the  bottom  of  the 
statement  is  more  easily  seen  if  put  in  legible  type.  It  can 
be  set  "on  the  bias,"  or  a  line  drawn  around  it  in  blue  pencil. 
Or,  the  statement  may  contain  a  question  mark  and  the  credit 
man's  initials  in  blue  pencil.  The  word  "over"  in  ordinary 
sized  type  at  the  bottom  may  call  attention  to  a  statement  of 
terms  on  the  back  or  to  some  printed  news  item,  quotation, 
epigram,  bit  of  verse,  etc.,  bearing  on  credits  or  collection. 


138 


NEW   COLLECTION    METHODS 


THE   PSYCHOLOGY   OF   COLLECTION 


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The  appearance  of  a  letter  has  much  to  do  with  its  atten- 
tion value.  Neatness  in  typing,  good  margins,  a  good  letter- 
head, and  respectable  paper  stock  entitle  the  letter  to  atten- 
tion. Beginning  with  a  story  or  with  some  striking  remark 
or  with  a  phrase  that  cuts  like  the  lash  of  a  whip  are  means 
of  preventing  the  reader's  eye  from  glancing  too  easily  over 
the  page.  A  question  is  a  better  attention-getter  than  a  plain 
statement.  Short  sentences,  short  paragraphs,  simple  lan- 
guage, make  easy  reading  and  so  invite  attention.  Tabulated 
material,  especially  if  listed  one,  two,  three,  etc.,  attracts  at- 
tention by  reason  of  a  margin  wider  than  the  other  parts  of 
the  letter. 

A  typewritten  letter  gets  better  attention  than  a  printed 
or  multigraphed  letter,  and  consequently  it  is  advisable,  if 
forms  are  required,  to  use  short  forms,  each  individually 
typed,  or  paragraph  forms,  each  individually  typed,  or  to 
run  the  letters  on  the  automatic  typewriter. 

Personal  Reference  in  Letters 

One  of  the  very  best  means  of  securing  attention  is  to 
mention  toward  the  beginning  of  the  letter  the  man's  name, 
some  fact  about  his  business,  or  his  orders,  that  sets  the  letter 
apart  from  the  usual  run  of  stereotyped,  generalized  collec- 
tion letters.    For  example,  "It  was  a  great  pleasure  to  receive 

your  nice  order  for ,  but  we  confess  that  when  we 

filled  it  and  checked  it  for  shipment  we  hardly  anticipated 
being  obliged  to  wait  more  than  60  days,  as  we  have  done, 
for  payment  after  the  time  it  was  due,"  or  "You,  yourself, 
Mr.  Smith,  as  treasurer  of  the  X  Y  Z  Corporation,  under- 
stand the  necessity  for  prompt  payments,  and  I  am  sure  you 
enforce  them  in  your  business."  Simple  references  like  these 
can  be  put  into  form  letters.  (See  Chapter  XXXIX.)  In 
dictated  letters  the  reader's  interest  will  be  aroused  in  pro- 
portion as  he  sees  that  the  writer  is  familiar  with  the  details 


of  his  personal  situation.    These  personal  references  usually 
arouse  pride  also. 

After  a  short  reminder,  to  use  a  longer  letter  is  a  good 
means  of  getting  attention,  especially  if  the  latter  part  of 
this  letter  contains  some  striking  statement. 

The  collector,  the  draft,  and  the  telegram  have  as  their 
chief  value  their  demand  on  the  debtor's  attention.  He  can- 
not overlook  them.  Statements  may  lie  in  a  scattered 
heap  on  his  desk,  collection  letters  may  be  thrown  down  as 
soon  as  he  discovers  their  nature,  or  even  before  he  has  opened 
the  envelope ;  but  no  matter  how  careless  or  indolent  he  may 
be,  the  telegram  finds  him  out,  the  draft  at  least  demands 
some  action,  and  the  collector  is  too  big  to  be  thrown  into 
the  waste-basket.  Probably  the  amount  of  fear  connected 
with  any  of  these  three  methods  is  not  very  great,  and  they 
serve  their  chief  function  as  attention-getters. 

Varied  methods  which  surprise  the  debtor  because  they 
are  out  of  the  ordinary  routine  have  attention  value,  as  ex- 
plained in  the  section  on  "Surprise  and  Impulse,"  page  175. 
A  collection  man  who  has  reason  to  believe  that  in  any  case 
his  letters  are  being  overlooked,  or  who  finds  that  his  early 
reminders  do  not  bring  so  high  a  percentage  of  replies  as 
they  should,  may  try  to  get  attention  by  more  direct  use  of 
some  of  the  appeals  discussed  in  this  chapter.  He  may  cast 
his  argument  into  the  form  of  a  story,  or  he  may  even  try 
various  "stunt"  methods  such  as  humorous  stories,  "freak" 
circulars,  queer  letter  heads,  and  so  forth. 

Objection  to  Freak  Letters 

But  the  objection  to  freakish  methods  In  collection  as  in 
sales  is,  first,  that  they  attract  attention  to  themselves  and 
not  to  the  action  desired;  second,  they  cannot  be  kept  up  in- 
definitely because  any  one  of  them  soon  loses  its  novelty,  and 
the  credit  man's  invention  in  thinking  up  others  is  soon  ex- 


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4 


140 


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hausted.  On  the  other  hand,  the  sound,  fundamental  reasons 
for  requesting  or  requiring  payments  are  always  serviceable, 
can  always  be  presented  in  new  and  interesting  forms,  and 
best  of  all,  they  rest  on  a  basis  of  genuine  fact,  on  the  actual 
relation  between  buyer  and  seller.  There  is  serious  danger 
that  freakish  methods  may  smack  of  excuses,  as  if  the  creditor 
were  ashamed  or  afraid  to  approach  the  delinquent  directly. 
It  cannot  be  said  that  such  methods  should  never  be  used; 
as  soon  as  anyone  tries  to  lay  down  an  absolute  rule  in  any 
direction,  some  clever  person  makes  a  startling  success  by 
breaking  that  rule  in  a  new  and  interesting  fashion.  But 
stunts  are  always  dangerous  and  in  any  but  the  smallest  per- 
centage of  cases  should  be  unnecessary. 

The  Attention  Value  of  Curiosity 

A  letter  beginning  with  a  news  item  or  a  story  excites 
the  reader's  curiosity  and  is  likely  to  make  him  finish  the  letter 
because  he  cannot  tell  precisely  what  is  coming.  Aside  from 
this  it  is  doubtful  whether  curiosity  is  an  instinct  of  much 
value  to  the  collector,  the  appeals  sometimes  listed  under  this 
head  belonging  rather  to  some  form  of  the  appeal  to  fear. 
(See  page  171.) 


CHAPTER    XVI 

APPEALS  TO  GOOD  CUSTOMERS 

The  Value  of  Habit 

The  collection  man  who  employs  a  good  system,  and  who 
follows  up  accounts  promptly  and  regularly,  never  allowing 
interference  with  routine,  avails  himself  of  the  power  of 
habit  in  the  customer  by  securing  action  always  at  a  fixed 
time,  and  by  building  up  a  custom  of  payment  which  is  hard 
to  break,  until  it  becomes  more  natural  to  take  the  action 

than  to  omit  it.  , 

The  purpose  of  reminders  should  be  to  reinforce  this 
power  of  habit  by  suggesting  that  the  account  has  been  over- 
looked, that  some  subordinate  has  failed  in  his  routine.  "The 
bookkeeper  in  the  press  of  work  has  omitted  to  send  your  cus- 
tomary check,*'  or  some  similar  phrase  suggesting  the  re-estab- 
lishment of  the  usual  habit. 

For  the  same  reason  it  is  not  advisable  unless  terms  are 
very  urgent  indeed  to  pay  marked  attention  to  early  delin- 
quency To  do  so  gets  the  debtor  to  thinking  about  it,  and 
raises  the  issue  in  his  mind,  "Shall  I  pay  this  bill,  or  shall  I 
postpone  payment?".  If  the  question  is  not  raised,  the  bill 
is  more  Ukely  to  be  paid  than  not. 

Making  Action  Automatic 

Habit  is  one  of  the  most  potent  factors  in  our  lives,  and 
it  is  all-important  to  the  collection  man.  The  sooner  he  can 
get  his  account  transferred  in  the  debtor's  mind  from  the 
list  of  those  things  which  require  special  thought  and  con- 
sideration, to  the  list  of  those  things  which  are  done  auto- 

141 


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143 


I  ii«i 


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matically,  the  better  for  him.  Ideally,  therefore,  all  his 
collection  methods  should  be  designed  to  establish  right 
habits  of  payment  in  his  customers  and  to  maintain  them. 
For  this  reason  it  is  a  good  thing  to  show  surprise  when 
the  payment  is  so  far  overdue  as  to  require  serious  atten- 
tion; because  this  suggests  strongly  that  the  normal  course 
of  things  be  resumed.  Shall  the  credit  man  take  this  lapse 
from  good  habits  seriously,  or  with  a  spice  of  humorous 
annoyance,  like  the  credit  man  who  wrote  "There  seems  to 
be  a  monkey-wrench  in  the  gear  box  somewhere.  Will  you 
take  it  out  by  sending  your  usual  prompt  check,  and  letting 
the  machinery  run  on  as  usual,  with  satisfaction  to  all  con- 
cerned?" This  is  a  question  which  different  men  will  answer 
in  different  ways. 

Creating  Bad  Habits 

Bad  habits  may  be  started  if  the  creditor  allows  a 
bonus  or  discount  for  prompt  payment.  Instalment  houses 
handling  small  accounts  by  mail  sometimes  use  this  method 
to  clean  up  an  account  and  get  rid  of  a  risky  customer.  A 
stereotyped  series  of  statements,  letters,  or  drafts,  gets  the 
customer  into  the  habit  of  waiting  for  severe  action. 

Obtaining  Payment  or  Explanation 

The  object  of  every  step  in  collection  is  to  obtain  either 
a  payment,  or  an  explanation  letting  you  know  just  what 
to  expect;  that  is,  making  a  definite  arrangement  for  settle- 
ment. Specific  action  is  looked  for  from  each  letter  or 
statement,  and  consequently  a  specific  request  should  be  made 
as  clearly  as  possible  at  the  end  of  the  letter.  This  action 
may  be  mentioned  elsewhere  in  the  letter,  for  instance,  at  the 
beginning ;  but  in  nearly  all  cases  it  should  also  come  at  the 
end.  Specific  language  picturing  the  action  taken  helps  the 
reader  to  "see  himself  doing  it,"  and  aids  his  imagination. 


"Don't  bother  to  write  a  letter ;  just  put  your  check  in  this 
envelope  and  send  it  back  before  you  forget  it,"  or  "Wrap 
a  bill  in  this  letter,"  or  "Use  the  enclosed  coin  card— that 
makes  it  easy  to  pay  this  small  account"— such  suggestions 
are  especially  useful  in  collecting  petty  accounts. 

Requests  for  explanation  or  reply  can  be  accompanied  by 
the  suggestion,  "Just  write  it  on  the  bottom  of  this  sheet," 
or  "the  back  of  this  sheet."  Some  firms  with  a  great  volume 
of  small  accounts  use  multigraphed  letters  with  questions, 
etc.,  in  a  space  at  the  bottom  of  the  sheet,  followed  by 
dotted  lines  for  the  answer. 

"Letting  Him  Down  Easy" 

All  assumptions  favorable  to  the  customer  and  providing 
a  courteous  reason  why  he  probably  has  not  made  payment 
are  "action-getters,"  because  rather  than  make  uncomfort- 
able explanations  the  delinquent  will  postpone  payment  still 
further.     But  when  relieved  from  that  unpleasant  necessity, 
he  is  far  more  likely  to  pay.     All  suggestions  of  leniency 
following  on  veiled  threats,  are  means  of  inducing  action, 
because  they  suggest,  "Repent  while  there  is  time,   lest  a 
worse  thing  befall  you."     In  general,  every  specific  appeal 
discussed  in  this  chapter  has  for  its  primary  purpose  the 
securing  of  action,  by  providing  an  incentive  strong  enough 
to  overcome  the  reasons  for  further  delay.     It  must  not  be 
thought  that  they  are  mere  courteous  expedients  adopted  in 
the  fear  of  giving  offense.    It  is  true  they  should  be  so  used 
as  constantly  to  resell  the  customer,  and  to  make  for  better 
and  more  profitable  relations ;  but  they  are  always  chosen  to 
secure  the  promptest  and  most  satisfactory  action  from  the 
individual  addressed. 

Finally,  it  is  often  necessary  to  allow  part  payments  or 
an  extension  of  time  in  order  to  make  action  possible  for  a 
debtor  who  would  find  it  quite  impossible  to  pay  at  once. 


It 


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NEW   COLLECTION   METHODS 


Suggest  Action  by  a  Story 

If  a  story  or  news  item  is  to  be  used,  try  to  put  into  it 
what  salesmen  know  as  "action  suggestion."  That  is,  let  it 
show  someone  performing  an  action  similar  to  the  one 
the  writer  wishes  the  reader  to  take.  The  story  of  how 
someone  made  a  payment  and  the  check  passed  from  hand 
to  hand  paying  other  bills,  until  at  last  it  came  back  to  the 
man  from  whom  it  started,  not  only  resells  the  principle  of 
credit,  but  gives  a  picture  of  someone  paying  a  bill,  and 
suggests,  "Go  and  do  thou  likewise."  The  story  of  how  "Pay- 
Up  Week"  succeeded  in  some  town,  presents  a  similar 
picture. 

Maintaining  Respect 

The  basis  of  all  sense  of  obligation  is  respect  for  one's 
self  and  for  the  person  to  whom  the  obligation  is  due.  A 
creditor  who  forfeits  his  customer's  respect  has  in  most  cases 
totally  destroyed  his  customer's  sense  of  obligation,  because 
a  delinquent  debtor  is  unlikely  to  pay  his  bills  from  a  sense 
of  self-respect  alone.  This  respect,  moreover,  is  founded 
on  a  wholesome  fear  of  the  creditor's  strength,  and  if  respect 
is  gone,  fear  will  go  with  it,  threats  will  be  of  little  use, 
and  the  creditor  will  be  driven  to  use  the  harsh  methods 
which  may  get  the  money  but  which  destroy  good-will.  This 
is  the  great  argument  against  using  dull  and  mechanical 
collection  letters  which  carry  a  poor  impression  of  the 
creditor's  ability.  Cheap  "stunts,"  funny  stories,  bonuses  for 
prompt  payment,  or  violent  language  and  bluster,  destroy 
respect  and  make  the  debtor  feel,  "There's  no  need  to  pay 
attention  to  what  those  fellows  write  you."  Then  in  order 
to  show  that  he  means  business,  the  creditor  will  be  obliged 
to  resort  to  suit. 

With  the  destruction  of  respect,  comes  contempt,  which 
postpones  action. 


APPEALS  TO  GOOD  CUSTOMERS 


US 


Loss  of  Respect  Means  Loss  of  Trade 

Even  more  important  than  any  of  the  foregoing  reasons 
for  maintaining  respect,  is  the  one  that  all  good  credit  men 
are  fond  of  insisting  upon,  namely,  that  a  customer  who  has 
lost  respect  for  a  house  will  not  wish  to  trade  with  it 
further.  The  loss  of  future  orders  is  even  more  serious  than 
the  loss  of  the  present  account 

Businesslike  methods,  efficient  system,  promptness  and 
regularity  in  collections,  definite  advance  from  stage  to  stage 
of  the  proceedings,  engender  respect.  Unhesitating  insis- 
tence on  the  creditor's  rights  and  willingness  to  proceed  to 
suit,  or  to  hunt  a  rascal  over  the  face  of  a  continent  with- 
out regard  to  expense,  for  the  sake  of  making  an  example 
to  wrong-doers,  is  absolutely  necessary  if  a  house  is  to  main- 
tain the  respect  of  a  certain  class  of  unscrupulous  cus- 
tomers. It  is  this  reason  which  makes  it  worth  while  some- 
times to  spend  many  times  the  amount  at  issue  in  securing 
a  judgment  from  a  debtor. 

Restraint  in  language,  courtesy,  understatement  rather 
than  overstatement,  guarded  language  when  referring  to 
harsh  steps  that  may  be  taken  in  the  future,  all  these  are 
indicative  of  strength  rather  than  weakness,  and  produce 
respect. 

Showing  Fairness 

The  creditor  who  is  not  fair  arouses  resentment  and 
anger,  emotions  which  postpone  payment  instead  of  securing 
it.  Unfairness  is  likely  to  destroy  the  legal  strength  of  the 
creditor's  position.  If  there  is  a  mistake  in  the  statement  of 
account  or  if  the  goods  can  be  proved  unsatisfactory  or  not 
up  to  sample,  the  account  cannot  be  collected.  Accordingly 
the  first  collection  letter  either  should  ask  whether  there  is 
any  mistake  or  misunderstanding,  or  should  say,  "Inasmuch 
as  we  have  not  heard  from  you  in  response  to  either  of  the 


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APPEALS   TO   GOOD   CUSTOMERS 


147 


statements  sent  you,  we  assume  that  there  is  no  misunder- 
standing or  discrepancy,  and  that  this  omission  of  your  cus- 
tomary payment  is  merely  an  oversight,  which  you  wi'l 
remedy  by  sending  us  a  check  on  receipt  of  this  letter." 

A  distinction  is  drawn  in  this  chapter  between  showing 
fairness  on  the  part  of  the  creditor,  and  appealing  to  the 
sense  of  fairness  or  fair  play  in  the  debtor.  The  "irst  should 
be  shown  throughout  the  entire  collection  procedure;  the 
second  is  a  special  appeal  which  will  be  taken  up  in  due 

course. 

Later  in  the  series  the  collection  man  can,  with  good 
effect,  claim  credit  for  the  fairness  he  has  shown,  thus 
appealing  to  shame.  If  he  says,  "It  is  our  belief  that  we 
have  been  very  patient  with  you,"  he  awakens  fear;  while 
if  he  goes  further  and  says,  "We  must  tell  you  frankly  that 
our  patience  is  pretty  nearly  exhausted,"  the  appeal  to  fear 
is  still  stronger. 

Aiding  to  Restore  a  Rating 

"I  impress  my  fairness  and  good-will  on  my  customers," 
says  a  credit  manager  of  widely-known  constructive  poUcies, 
"by  writing  to  them  if  I  see  their  ratings  in  Dun's  or  Brad- 
street's  have  been  reduced.  I  ask  them  if  they  know  the 
basis  for  the  action,  and  offer  every  legitimate  help  in 
getting  their  standing  restored.  It  is  possible  that  an  in- 
justice has  been  done,  and  then  my  aid  is  appreciated.  On 
the  other  hand,  if  the  reduction  is  justified,  I  have  a 
splendid  chance  to  give  constructive  suggestions  as  to 
business  poUcies  that  will  restore  them  to  their  former 
standing." 

"Help  Us  Protect  Your  Standing" 

What  would  you  do  if  you  received  a  letter  from  your 
creditor,  saying,  "We  have  received  a  letter  from  (naming 


some  outside  agency  or  some  other  house)  which  indicates 
that  your  name  is  being  made  the  subject  of  inquiry  from 
the  trade,  and  it  occurs  to  us  that  in  fairness  to  you  wc 
should  write  and  suggest  the  payment  of  the  pending  in- 
voices now  considerably  overdue  in  order  that  we  may 
be  able  to  make  a  satisfactory  reply?"  This  shows  the 
creditor's  fairness  and  awakens  a  sense  of  gratitude.  Such 
a  letter  is  regularly  used  by  at  least  one  credit  manager 
before  turning  the  account  over  to  an  outside  agency  for 
collection.  At  the  time  he  sends  the  letter,  he  instructs  the 
agency  in  question  to  make  inquiries  regarding  the  delin- 
quent, so  that  whether  or  not  his  letter  meets  with  response, 
his  inquiries  will  be  of  service  in  regard  to  further  steps  he 
may  take. 

Obligation  and  Advantage 

The  customer  must  pay — it  is  also  to  his  advantage  to 
pay.  Which  reason  will  get  the  money  quicker?  The  col- 
lection man  who  believes  in  resale  argues  that  more  flies  are 
caught  with  sugar  than  with  vinegar,  and  while  he  keeps 
the  debtor's  obligation  in  his  mind,  he  impresses  on  him  from 
every  angle  advantages  to  be  secured  by  prompt  payment. 
All  the  appeals  in  this  chapter,  except  those  to  shame  and 
fear,  are  made  to  the  desire  to  secure  some  advantage.  As 
the  diagram  on  page  136  shows,  obligation  is  felt  at  first 
only  as  a  moral  duty — a  personal  feeling — later  in  its  full 
force  as  an  obligation  assumed  under  contract,  and  finally 
passes  into  fear  of  consequences.  Advantages  to  be  secured 
by  payment  become  fewer  as  delinquency  grows,  until  the 
only  one  left  is  self-preservation,  the  escape  with  a  whole 
skin. 

The  diagram  should  be  kept  in  mind  when  planning 
letters,  at  different  stages  of  the  procedure,  based  on  the 
appeals  here  discussed. 


M 


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The  Appeal  to  Pride 

The  appeal  to  pride  is,  in  the  judgment  of  the  writer, 
next  to  resale  (the  appeal  to  self-interest)  the  most  useful 
of  all  that  can  be  employed  in  collections.  It  may  be  used 
in  an  indefinite  number  of  ways.  All  resale  arguments, 
whether  applied  to  credit  or  merchandise;  all  offers  of 
leniency,  especially  when  they  come  from  a  responsible 
official  of  the  house;  expressions  of  pleasure  regarding  the 
business  relations  between  the  creditor  and  the  customer, 
can  be  made  to  appeal  strongly  to  pride.  The  appeal  may 
be  made  at  any  stage  in  the  collection  procedure,  from  the 
first  interview  in  which  the  credit  man  "sells  credit"  down 
to  the  time  when  the  creditor  has  instituted  suit,  and  makes 
a  last  appeal  to  pride  in  order  to  prevent  final  action  being 
taken.  All  appeals  to  the  debtor's  self-interest  can  be  made 
to  awaken  pride.  Sometimes  the  appeal  to  self-interest  goes 
hand  in  hand  with  fear  rather  than  with  pride,  when  the 
only  advantage  which  his  payment  will  secure  is  the  saving 
of  his  skin;  but  even  at  the  last  stage  of  operations  it  can 
be  suggested  that  payment  will  not  only  save  the  cost  and 
disgrace  of  court  proceedings,  but  will  reinstate  the  debtor 
in  the  good  opinion  of  the  creditor — which  appeals  to  his 

pride. 

If  the  appeal  to  pride  is  overdone,  and  becomes  flattery, 
it  arouses  contempt,  and  defeats  its  own  ends. 

Phrases  That  Appeal  to  Pride 

A  courteous,  respectful  tone  in  collection  letters  appeals 
to  pride  by  showing  that  though  payment  is  overdue  the 
firm  still  desires  to  maintain  friendly  relations.  *T)oubtless 
this  is  an  oversight*'— "Your  statement  has  been  overlooked 
during  this  busy  season"— "Such  oversight  happens  some- 
times with  the  best  of  customers" — "Don't  bother  to  ex- 
plain, we  know  how  it  happens  ourselves" — ^these  phrases 


APPEALS  TO  GOOD  CUSTOMERS 


149 


show  confidence  in  the  customer's  good  intentions.  A  re- 
quest that  he  send  in  an  order  with  his  check,  a  paragraph 
of  sales  material  in  the  letter,  or  such  a  sentence  as  "The 
sales  manager  of  your  territory,  Mr.  Johnson,  tells  me  it's 
about  time  he  had  an  order  from  you,"  or  an  envelope  insert 
from  the  sales  department ;  all  these  are  selling  devices  show- 
ing desire  for  the  customer's  trade  and  appealing  to  his 
pride. 

References  to  "our  good  customers" — "the  high  class  of 
our  trade" — "We  take  pride  in  the  people  we  do  business 
with — "our  good  friends" — ^these  awaken  pride.  Appeals 
made  "as  one  business  man  talking  to  another"  call  forth 
pride  by  putting  customer  and  seller  on  an  equal  footing, 
and  show  frankness  as  well.  The  expressed  desire  to  "re- 
establish cordial  relations"  arouses  pride  as  well  as  self- 
interest. 

Still  appealing  to  pride,  but  with  more  emphasis,  is  the 
statement,  "We  do  not  for  one  moment  suppose  that  this 
reflects  the  methods  of  your  office,  but  we  do  not  doubt 
some  subordinate  has  been  failing  to  give  this  matter  proper 
attention.  We  should  like  to  see  it  brought  to  the  notice 
of  the  proper  official  of  the  house."  An  anecdote  can  be 
told  showing  how  such  an  occurrence  happened  to  some 
other  house  in  the  writer's  experience. 

Urging  the  Discount 

When  urging  a  merchant  to  discount  his  bills,  the  ex- 
planation of  the  opportunity  should  be  made  in  such  a  way 
as  to  appeal  not  only  to  self-interest  through  the  savings 
instinct,  but  also  to  pride.  A  merchant  should  never  feel 
that  he  is  being  "ridden"  for  not  discounting.  "Our  patrons 
find  that  they  can  afford  to  borrow  at  the  bank  in  order  to 
secure  our  discount,"  is  a  statement  that  can  be  followed 
by  detailed  explanation  of  just  why  this  is  possible.     "We 


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NEW   COLLECTION   METHODS 


APPEALS   TO   GOOD   CUSTOMERS 


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feel  we  may  rely  upon  you  now  to  help  us  maintain  your 
standard  of  payment  on  your  account/'  is  useful  in  instal- 
ment letters,  but  it  can  be  adapted  to  any  purpose.  "Our 
past  relations  have  inspired  confidence  in  your  integrity  and 
ability  to  pay,"  contains  just  a  suggestion  that  the  opposite 
of  integrity  may  exist.  All  reference  to  past  cordial  rela- 
tions and  to  the  good  business  transacted  in  itself  arouses 
pride,  as  does  also  a  reference  to  "your  usual  promptness." 

Asking  for  His  Own  Judgment 

A  good  effect  is  produced  at  the  end  of  a  letter  by  the 
phrase,  "You  may  be  sure  your  courtesy  will  be  appre- 
ciated," or  by  the  signature,  "Respectfully  yours."  To  refer 
the  matter  to  the  debtor's  own  judgment,  as,  "You  will 
doubtless  agree  with  us  that  our  terms  are  unusually  liberal," 
or  "that  the  payment  is  considerably  overdue  and  should 
now  be  made  without  delay,"  not  only  shows  fairness  but  is 
so  courteous  as  to  awaken  pride.  "It  is  our  belief  that  you 
are  just  as  anxious  to  clear  up  any  past-due  items  as  we 
are  to  have  them  balanced" — "You  would  not  think  well 
of  our  business  methods  if  we  allowed  you  to  forget  the 
account" — "You  value  a  clean  record;  we  prize  your  good- 
will"— are  sentences  which  awaken  pride  by  showing  defer- 
ence for  the  customer's  opinion.  "We  do  not  care  to  think 
that  your  failure  to  pay  is  intentional,"  contains  a  sting,  but 
still  shows  esteem. 

The  customer's  pride  in  his  own  business  dealings  can 
be  referred  to  effectively,  "You  run  your  affairs  efficiently" 
— "You  maintain  a  standard  of  prompt  collections" — are 
very  useful  forms  of  this  appeal. 

Local  Pride 

Local  pride  or  sectional  pride  can  be  made  use  of.  "We 
have  heard  a  good  deal  about  the  way  they  run  things  in 


Detroit,"  wrote  one  manager,  "and  we  don't  believe  they  got 
this  reputation  by  overlooking  settlement  of  their  invoices." 
East  and  West,  North  and  South,  each  can  use  semi- 
humorous  reference  to  the  other's  enviable  record.  Some- 
times financial  conditions  affect  a  wide  section,  making  pay- 
ments difficult,  and  the  pluck  and  pride  of  the  whole  district 
can  be  encouraged  in  correspondence  from  the  credit  man. 

Granting  Extensions 

When  granting  part  payment  or  an  extension  of  time 
in  most  cases  a  strong  appeal  to  pride  should  be  made  in 
order  to  bolster  up  the  customer's  sense  of  obligation.  "We 
take  great  pleasure  in  granting  the  favor  you  ask,"  the 
credit  man  can  say,  "because  we  are  well  assured  that  you 
are  worthy  of  the  confidence";  or,  "It  is  a  pleasure  to  find 
ourselves  in  the  position  to  do  as  you  request  and  to  feel 
that  this  is  no  more  than  the  due  of  one  with  whom  our 
past  dealings  have  been  so  unusually  pleasant."  The  same 
is  true  when  an  extension  of  time  is  granted.  To  accede 
grudgingly  to  a  favor  robs  it  of  the  good- will  element  and 
the  recipient  feels  much  less  sense  of  obligation. 

Showing  Confidence 

In  serious  collection  correspondence  after  the  delinquency 
has  passed  the  "reminder"  stage,  such  phrases  as  "We  wish 
to  take  up  with  you  frankly" — "a  frank  attitude" — *Tt 
occurred  to  us  you  would  respond  to  a  straight-from-the 
shoulder  request  for  payment" — imply  that  the  creditor  has 
a  high  opinion  of  the  debtor.  "When  we  shipped  our  goods, 
we  expressed  our  confidence  in  you,"  reminds  the  debtor 
of  the  good  opinion  he  is  in  danger  of  forfeiting.  If  the 
letter  goes  on  to  express  disappointment,  it  appeals  to  shame 
as  well,  while  if  it  contains  a  courteous,  deferential  ex- 
planation   of    the    basis    for    credit,    it    appeals    still    more 


l>  '  . 


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152 


NEW  COLLECTION  METHODS 


APPEALS  TO  GOOD  CUSTOMERS 


153 


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Strongly  to  pride.  All  resale  of  credit  principles,  such  as 
explanation  for  the  need  of  prompt  settlement  of  account, 
is,  as  has  been  said  before,  an  appeal  to  pride,  by  showing 
confidence  in  the  customer's  willingness  to  take  the  right 
action  when  once  he  understands  the  matter  rightly. 

"Get  On  Your  Feet  Again** 

"Pay  this  old  account  and  clean  off  the  slate;  then  you 
can  get  a  new  start,"  is  an  appeal  much  used  by  instalment 
collectors  which  holds  out  the  hope  of  reinstatement  in  the 
creditor's  good  esteem.  A  similar  statement  is,  "No  greater 
asset  to  a  business  man  exists  than  the  proved  ability  to 
overcome  handicaps  and  live  up  to  the  arrangement  he  has 
made."  This  idea  is  used  with  splendid  effect  by  a  certain 
jobber  in  dealing  with  discouraged  merchants,  and  some 
application  of  it  can  be  made  to  almost  every  kind  of 
business.  Indeed,  all  the  work  of  constructive  credit  should 
be  so  conducted  as  to  appeal  to  pride  with  no  suggestion  of 
shame.  Likewise,  such  co-operative  collection  methods  as 
"Pay-Up  Week"  and  "Nimble-Dollar  Day"  which  involve 
the  resale  of  the  credit  principle  and  have  besides  a  strong 
element  of  good-natured  rivalry,  should  always  be  so 
managed  that  it  is  a  badge  of  honor  to  pay  one's  bills  rather 
than  a  mark  of  shame  to  be  found  out  as  one  who  has  not 
paid. 

The  frank  statement  that  confidence  is  being  under- 
mined by  the  debtor's  action,  "Conditions  have  actually 
reached  the  point  where  we  are  losing  confidence,  and  that 
is  something  we  do  not  want  to  happen,"  helps  the  debtor 
to  realize  the  worth  of  the  asset  he  is  throwing  away. 
Appreciation  of  the  customer's  efforts,  of  payments  or 
promises  he  has  made,  or  good  intentions  expressed,  appeal 
to  his  pride  by  recognizing  his  honest  purpose. 

Even  the  man  who  abuses  the  discoimt  privilege  can  be 


appealed  to  through  the  sense  of  pride,  although  an  en- 
deavor to  shame  him  out  of  his  practice  is  a  natural  appeal  to 
choose.  "We  take  pride  in  our  customers  and  are  loath 
to  believe  that  one  of  them  would  intentionally  take  what 
did  not  belong  to  him.  Consequently  we  prefer  to  believe 
that  some  subordinate  has  been  following  this  practice,"  is  a 
sentence  from  a  letter  on  this  subject,  calculated  to  awaken 
whatever  pride  a  house  may  have. 

Courtesy  Awakens  Pride 

Above  all  else,  it  is  the  courteous  and  considerate  attitude 
taken  in  collection  letters  or  in  credit  correspondence  which 
makes  the  customer  feel  that  he  is  being  treated  as  an  honor- 
able citizen  and  a  good  business  man.  It  appeals  to  his 
moral  sense  as  strongly  as  would  a  direct  accusation  of 
wrong-doing,  and  it  has  the  advantage  of  not  arousing  his 
anger  and  opposition.  It  retains  and  builds  good-will. 
Finally,  the  appeal  to  pride  is  based  on  the  unfortunate  fact 
that  in  America  carelessness  in  payment  and  even  failure  to 
respond  to  collection  letters  are  often  characteristic  of  men 
who  in  other  respects  are  strictly  honorable  and  would  not 
tolerate  a  slight  upon  their  integrity.  The  appeal  to  their 
pride  simply  reminds  them  that  to  classify  themselves  as 
"slow  pay"  does  not  accord  with  their  high  standing  in  other 
particulars.  The  appeal  to  pride  goes  hand  in  hand  with 
the  appeal  to  self-interest.  It  is  part  of  the  campaign  of 
education  to  show  merchants  the  meaning  and  value  of  the 
credit  system. 

Resale— The  Appeal  to  Self-interest 

As  has  just  been  said,  the  campaign  of  education  to  show 
a  merchant  what  the  credit  system  means  to  him,  or  how 
his  prosperity  is  affected  by  his  good  relations  with  his 
creditors,  should  be  so  handled  as  to  appeal  to  his  sense  of 


li 


154 


NEW   COLLECTION   METHODS 


APPEALS   TO   GOOD   CUSTOMERS 


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self-interest  and  seldom  to  a  sense  of  shame  or  fear.    Most 
of  the  available  suggestions  for  letters  on  this  subject  will 
be  found  in  Chapters  VII  to  XIII,  inclusive,  and  Chapters 
XXVII  and  XXVIII  on  constructive  credits,  as  well  as  in 
the  earlier  part  of  the  present  chapter.    "We  must  practice  good 
business  methods  to  be  able  to  sell  good  merchandise  at  a  low 
price,"  is  a  sentence  included  by  one  firm  in  its  early  reminders. 
In  showing  the  advantage  to  the  customer  of  prompt  pay,  one 
retailer  writes,  "My  prices  are  all  figured  on  a  cash  basis,  so  I 
must  see  that  my  book  accounts  never  represent  a  large  per- 
centage  of   my   income    from   this   business."      Brief    sug- 
gestions of  resale  ideas  can  be  printed  on  stickers  pasted  to 
statements  or  included  in  early  short  collection  letters,  while 
more  serious  explanations  of  these  matters  can  be  entered 
into  when  the  bill  is  so  far  overdue  that  the  assumption  of 
an  oversight  or  carelessness  can  no  longer  be  maintained. 

As  pointed  out  in  Chapters  XVIII  to  XXV  dealing  with 
procedure,  it  is  probably  true  that  a  customer  who  with- 
holds payment  does  so  because  he  wants  the  money,  and 
it  is  logical  to  show  him  that  his  real  advantage  lies  in 
prompt  payment.  Letters  of  this  sort  are  very  effective  in 
getting  an  answer,  on  the  basis  of  which  satisfactory 
arrangements  can  be  made. 

There  is  a  shrewd  suggestion  that  future  orders  may  be 
held  up  or  credit  cut  down  in  the  sentence,  "We  want  to 
make  it  possible  for  you  to  continue  to  get  the  benefit  of 
our  goods  and  service,"  though  the  primary  force  of  it  is  to 
resell  the  benefit  mentioned.  A  milder  form  of  the  same 
idea  and  one  which  appeals  as  well  to  pride  and  the  desire 
to  succeed  is  the  statement,  "We  are  genuinely  interested  in 
your  success,  and  desire  to  have  you  maintain  your  record 
of  payment  with  us  in  order  to  prepare  the  way  for  even 
larger  and  more  profitable  business  dealings  than  those  we 
have  enjoyed  in  the  past."     The  reference  to  larger  deal- 


ings must  be  employed,  of  course,  only  with  merchants  whom 
the  house  knows  to  be  really  worthy  of  such  a  sign  of  con- 
fidence. 

Appeals  to  Good- Will 

The  house  can  rely  on  the  good-will  of  its  customers  to 
help  it  out  in  a  tight  place,  and  under  ordinary  conditions 
it  can  appeal  to  the  same  feeling  to  aid  it  in  maintaining  a 
businesslike  promptness.  Many  houses  use  the  phrase,  "We 
rely  on  the  good- will  of  our  customers  to  repair  these  little 
oversights  on  being  reminded  of  them,"  suggesting  both 
good- will  and  pride.  "The  largest  percentage  of  our  friends 
who  do  not  discount  pay  on  receipt  of  the  statement,"  makes 
use  of  the  word  "friends"  to  suggest  good- will. 

An  Urgent  Need 

Suppose  a  house  suddenly  finds  itself  hard  pressed  for 
money.  Calls  are  coming  in  from  every  quarter.  Unfore- 
seen difficulties  have  been  met  with.  The  usual  sources  of 
relief  are,  for  one  reason  or  another,  blocked.  Under  such 
circumstances  an  executive  who  sits  down  and  writes  a  frank 
statement  of  the  case  to  his  customers  who  owe  him  money, 
and  appeals  to  them  on  the  score  of  their  good- will  estab- 
lished through  many  years  of  pleasant  dealings,  is  likely  to 
receive  a  generous  response.  The  letter  should  carefully 
avoid  all  suggestion  that  the  writer  is  "on  the  rocks,"  for 
if  his  customers  get  the  impression  that  he  is  going  to  fail, 
anyway,  some  of  them  may  be  selfish  enough  to  hold  off  a 
little  longer.  The  appeal  to  pity  seldom  succeeds.  Good- 
will must  in  this  case  be  combined  with  the  sense  of  self- 
advantage,  making  the  man's  customers  feel  that  by  helping 
him  to  get  on  his  feet  again  they  will  have  the  benefit  of 
more  good  business  with  him  in  the  future. 

In  the  same  way  a  retailer  can  say  to  a  customer  that 


';i      ♦! 


156 


NEW   COLLECTION   METHODS 


he  has  a  heavy  bill  to  meet — will  his  friend  help  him  out 
with  something  on  account? 

Avoid  "Poor  Mouth" 

All  suggestion  of  "poor  mouth,"  implying  that  the  money 
is  desperately  needed,  should  be  carefully  excluded  from 
collection  letters  because  most  readers  will  not  believe  it  and 
if  they  do,  they  will  not  wish  to  continue  trading  with  such 
a  weak  house.  No  excuses  or  apologies  should  ever  be 
offered,  but  the  real  reason  underlying  collections,  the  con- 
stant need  of  payment  to  maintain  the  credit  system,  can 
be  unhesitatingly  set  forth. 

"Co-operation"  a  Magic  Word 

The  word  "co-operation"  is  full  of  magic  today,  thanks 
to  the  gradual  acceptance  by  the  business  world  of  the  fact 
that  the  old  day  of  cut-throat  competition  is  gone  for  good, 
and  that  men  are  more  advantaged  by  standing  shoulder  to 
shoulder — as  they  should  in  a  democracy.  A  request  for 
co-operation  can  be  used  in  any  letter;  it  is  a  fine  substitute 
for  the  cry,  "We  need  the  money,"  being  at  once  more 
dignified  and  better  founded  on  fact.  It  reminds  the  delin- 
quent of  the  nature  of  the  credit  system,  which  without  co- 
operation could  not  exist  a  day.  A  longer  letter  "selling  the 
idea"  of  co-operation,  or  a  printed  insert  sent  with  a  state- 
ment, will  help  to  plant  the  thought  in  a  customer's  mind. 
"We  rely  on  your  co-operation  in  keeping  your  account 
within  the  limit  agreed  upon,"  shows  one  use  of  this  appeal. 


CHAPTER    XVII 

APPEALS  TO  THICK-SKINNED  CUSTOMERS 

Varying  the  Appeal 

All  the  foregoing  appeals  are  based  on  the  assumption 
that  the  customer  has  a  strong  sense  of  honor  and  pride,  and 
is  able  to  understand  the  nature  of  the  credit  obligation.  They 
produce  a  powerful  effect  on  a  different  class  of  customers 
when  combined  with  other  appeals,  as  we  shall  see.  The  fol- 
lowing appeals  to  good  nature,  fair  play,  the  desire  to  avoid 
annoyance,  the  sense  of  shame,  and  the  sense  of  fear,  may 
be  used  from  the  beginning  with  the  thick-skinned  or  slow- 
paying  customer  or  in  dealing  with  any  type  of  customer 
who,  through  his  failure  to  respond  to  other  kinds  of  letters 
has  classified  himself  as  poor  pay. 

Appeal  to  Good  Nature 

A  great  many  men  will  respond  quickly  to  a  tone  of  good 
nature  used  at  a  time  when  the  creditor  has  every  right  to 
use  severe  methods.  "Oh,  well,  what's  the  use  of  getting 
angry  about  this?"  the  creditor  seems  to  say.  "You  are 
probably  a  pretty  good  fellow  and  I  have  confidence  you  will 
pay." 

The  great  success  of  letters  with  a  good-natured  anec- 
dote or  a  little  humorous  dialogue  is  due  to  the  fact  that  there 
are  many  stubborn  people  in  the  world,  who  like  to  show 
that  they  are  "as  good  as  the  next  man"  by  not  responding 
promptly  to  their  obligations.  There  is  no  use  in  being  angry 
with  these  so-called  "independent"  people,  and  a  good-na- 
tured attitude  can  be  adopted  even  when  sending  a  draft  or 
giving  notice  of  an  attorney's  call.     "Having  had  no  reply 

157 


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158 


NEW    COLLECTION    METHODS 


to  our  letter,"  wrote  one  house  to  a  customer  of  this  kind, 
"we  have  today  turned  our  account  over  to  Blank  and  Blank, 
attorneys  of  your  city,  with  instructions  to  begin  court  pro- 
ceedings immediately.  We  take  it  that  in  so  doing  we  are 
proceeding  in  accordance  with  your  own  wishes,  and  that 
this  way  of  settlement,  while  not  the  one  we  should  choose, 
is  based  on  your  preferences.  With  best  wishes.  Very  truly 
yours."  This  letter  tickled  the  customer's  sense  of  humor 
so  much  that  he  sent  in  his  check  by  return  mail  and  has  since 
kept  up  his  business  with  this  house. 

The  "crying-face"  stamp  or  paster  on  the  statement,  and 
the  "smiling  face"  on  the  receipted  bill  do  not  represent  a 
very  high  grade  of  humor,  but  in  many  cases  they  seem  to 
"get  the  money."  "The  policy  of  the  house  demands  that  wc 
follow  up  these  matters,  but  we  would  much  rather  put  our 
efforts  into  giving  you  and  the  rest  of  our  customers  better 
goods  or  service,"  is  a  good-natured  way  of  reminding  the 
delinquent  that  he  is  not  advantaging  himself  by  the  refusal. 

A  good-humored  collection  letter  written  by  Louis  Victor 
Eytinge  encloses  a  blotter  showing  a  war  map  of  Europe, 
with  a  suggestion  that  the  customer  use  it  to  blot  the  signa- 
ture on  the  check  for  last  month's  invoice. 

Appeal  to  Fair  Play 

The  appeal  to  the  justness  of  the  customer  or  to  his  sense 
of  fair  play  is  based  on  a  strong  and  fine  instinct.  The  in- 
stantaneous acceptance  of  Roosevelt's  phrase,  "a  square  deal," 
shows  that  this  feeling  is  powerfully  rooted  in  us  all.  It 
implies  just  a  little  bit  of  resentment,  and  shows  that  the  man 
who  is  making  the  appeal  is  ready  to  fight  for  his  rights,  but 
it  shows  also  his  belief  that  the  other  fellow  is  a  "good  sport" 
and  means  to  do  the  right  thing.  The  thick-skinned  or  care- 
less delinquent  who  is  really  able  to  pay  will  be  roused  by 
this  appeal  without   feeling  offense.     "Put  yourself  in  our 


APPEALS  TO  THICK-SKIi>rNED   CUSTOMERS 


159 


place — ^how  would  you  feel  if  we  were  withholding  a  pay- 
ment that  you  knew  yourself  entitled  to  ?"  illustrates  this 
appeal. 

Some  of  the  most  successful  phrases  appealing  to  fair 
play  are,  "Will  you  do  your  part?" — "I  must  follow  my 
established  rule" — "I  cannot  make  an  exception  in  your  case" 
— "We  are  willing  to  allow  for  exceptional  instances,  but  how 
can  we  unless  we  know  the  circumstances?" 

The  method  of  asking  the  debtor  to  classify  himself,  like 
other  appeals  to  his  own  judgment,  shows  fairness. 

A  reference  to  past  leniency  can  be  coupled  with  the  ap- 
peal for  fair  play  by  showing  that  the  creditor  deserves  a 
reply.  "It  may  be  you  are  tempted  to  feel  that  because  the 
house  of  Jones  and  Company  is  large  and  this  account  is  small, 
we  can  be  asked  to  wait.  This  is  not  quite  fair  to  us,  because 
the  aggregate  of  the  small  bills  is  a  large  sum;  nor  really  a 
square  deal  to  our  other  customers  who  pay  promptly."  Such 
a  letter  can  continue  by  appealing  to  the  customer's  sense  of 
what  constitutes  good  business  standards. 

"Meet  Us  Half- Way" 

"You  will  agree  that  we  have  been  very  fair  up  to  date. 
Now  won't  you  meet  us  half-way  by  sending  us  in  the  return 
mail  your  check  for  goods  shown  on  the  accompanying  state- 
ment?" is  a  good  way  to  write  to  delinquents.  Retail  cus- 
tomers frequently  discontinue  trading  with  a  merchant  to 
whom  they  are  heavily  indebted.  He  can  say  to  them  either 
in  person  or  by  letter,  "By  the  way,  you  are  buying  goods 
somewhere — why  not  from  me?  Does  not  the  fair  treat- 
ment you  have  received  entitle  me  to  your  continued  patron- 
age?" A  resale  of  the  value  of  the  merchant's  goods  and 
services  can  follow  this,  while  a  suggestion  that  his  past  trade 
was  appreciated  appeals  to  his  pride  and  helps  to  remove  the 
sting  caused  by  the  implication  that  he  has  been  unfair. 


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NEW   COLLECTION   METHODS 


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The  question  "Is  there  any  reason  why  you  are  unable 
to  meet  the  bill  which  is  now  overdue  ?**  shows  the  creditor's 
fairness  and  makes  the  debtor  feel  like  playing  fair  as  well. 
"Please  realize,"  says  the  collection  manager  of  an  instal- 
ment house,  "that  it  is  not  only  expensive  to  be  compelled  to 
write  every  so  often  on  such  a  small  matter  as  this,  but  it  really 
grieves  us  that  our  efforts  to  adjust  have  apparently  met 
with  so  little  sympathy  and  co-operation."  Part  of  the 
same  idea  is  found  in  the  sentence,  "It  is  not  exactly  square  to 
ask  us  to  add  the  expense  of  correspondence  and  postage,  to 
say  nothing  of  the  labor  of  handling  the  accounts  in  the  office, 
to  the  legitimate  cost  on  which  the  price  of  our  goods  is 
based." 

A  more  general  form  of  the  same  appeal  can  be  used  with 
splendid  effect:  "Is  it  fair  to  ask  us  or  any  other  merchant, 
at  this  time  of  national  emergency,  to  add  the  heavy  cost  of 
correspondence  and  office  labor  in  following  up  overdue  ac- 
counts, to  the  already  high  prices  which  we  are  obliged  to 
pay  to  those  from  whom  we  buy?  We  confidently  rely  upon 
you  to  co-operate  with  us  in  conserving  the  credit  stability 
of  the  country,  and  helping  us  to  avoid  further  advance  in 
our  prices  to  you,  by  payment  of  invoices  promptly  as  they 
become  due."  Such  a  letter  joins  the  appeal  to  fair  play  to 
the  equally  strong  appeals  based  on  pride,  patriotism,  and 
self-advantage. 

Offering  "Constructive  Credits" 

Working  to  secure  a  reply  and  a  basis  for  agreement,  the 
constructive  credit  manager  can  offer  to  help  the  delinquent 
to  collect  his  own  accounts  or  to  send  down  a  skilled  repre- 
sentative who  can  give  advice.  Nothing  can  be  more  fair 
than  this  and  it  arouses  the  customer's  sense  of  fair  play. 
"We  want  to  be  fair  to  you,  and  in  return,  we  are  sure  you 
desire  to  be  fair  with  us."    One  very  successful  collector  who 


APPEALS  TO   THICK-SKINNED   CUSTOMERS         i6l 

does  a  large  business  in  retail  accounts  in  a  Middle  Western 
city  writes  a  letter  full  of  vigorous  questions:  "Is  the  account 
in  dispute?  Where  is  the  misunderstanding?"  offering  to  be 
the  mediator  between  creditor  and  debtor.  In  a  later  letter 
he  carries  this  suggestion  further  by  referring  to  the  well- 
known  standing  of  both  parties,  which  shows  his  own  fair- 
ness and  appeals  to  pride.  In  another  letter  which  bristles 
with  pointed  though  courteous  questions,  he  offers  to  help 
the  delinquent  collect  any  money  that  may  be  owing  to  him, 
promising  him  success,  and  offering  as  evidence  the  ability 
shown  in  the  present  letter.  Such  appeals,  like  all  appeals 
to  fair  play,  can  readily  be  followed  by  appeals  to  fear  in 
case  the  former  meet  with  no  response. 

The  "General  Manager"  Letter 

A  method  used  with  the  greatest  success  is  to  refer  the 
account  to  some  higher  official,  who  from  his  position  of 
superior  power  grants  a  stay  of  proceedings  while  he  makes 
one  last  appeal  to  the  customer's  pride  and  respect  for  fair 
play.  The  letter,  known  variously  as  the  "general  manager 
letter,"  the  "vice-president's  letter,"  the  "controller's  letter," 
is  illustrated  elsewhere  in  this  book.  It  makes  no  attempt  to 
terrify  the  delinquent,  though  it  clearly  states  that  further 
action  will  be  taken  if  he  does  not  respond  immediately; 
its  tone  is  unmistakably  friendly.  Resale  arguments  of  every 
kind  can  be  used  in  this  sort  of  letter. 

Putting  It  Up  to  Him 

Another  strong  letter  works  for  a  reply  by  putting  the 
matter  squarely  up  to  the  customer,  "If  you  feel  that  our 
action  has  been,  perhaps,  not  entirely  reasonable,  we  shall  be 
very  glad  to  have  you  write  us  frankly  and  fully  regarding 
your  feeling  in  the  matter."  "We  have  done  our  best  to  pre- 
vent cause  for  friction  by  carrying  the  account  till  now.    You 


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APPEALS  TO  THICK-SKINNED  CUSTOMERS 


163 


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do  not  expect  us  to  keep  this  up.  The  next  move  should  be 
made  by  you,'*  is  a  statement  to  be  used  just  before  resorting 
to  outside  collection  means,  while  the  sentence,  "We  trust 
to  your  sense  of  fairness  to  set  this  matter  right,"  can  be  used 
in  a  reminder  letter  following  the  statement. 

"A  Square  Deal"— "Classify  Yourself" 

A  letter  from  an  instalment  house  to  a  seriously  overdue 
customer  contains  the  sentence,  "If  you  believe  in  a  square 
deal,  show  it  by  paying  this  account  in  a  straightforward 
man-fashion."  A  sentence  with  less  sting  in  it  runs  as  fol- 
lows, "Please  return  this  letter  with  your  remittance  and  we 
will  know  that  you  are  another  American  who  believes  in  a 
square  deal."  The  "alternative  method,"  or  "classify  your- 
self method,"  can  be  coupled  with  the  fair-play  appeal  as  fol- 
lows: "Are  we  unfair  in  judging  from  the  lack  of  response 
to  our  letters  that  you  are  putting  yourself  in  a  not  very 
pleasant  classification  ?" 

*'Our  experience  has  been  that  there  are  two  classes  of 
business  men  who  neglect  their  obligations — ^those  who  are 
careless  but  well-intentioned,  and  those  who  are  deliberately 
withholding  payment.  In  which  class  are  you?"  is  a  para- 
graph used  in  a  collection  agency  letter  when  the  customer's 
good-will  is  no  longer  desired. 

A  paragraph  that  can  be  used  under  more  favorable  circum- 
stances is,  "There  are  unquestionably  two  classes  of  men  who 
allow  their  accounts  to  drag — ^those  who  are  thoroughly  hon- 
orable and  intend  to  pay  but  are  habitually  slow  or  are  forced 
by  circumstances  to  delay  payment,  and  those  who  are  delib- 
erately careless.  We  wish  to  say  to  you  with  the  utmost  fair- 
ness that  we  do  not  for  one  moment  believe  that  you  intend 
to  classify  yourself  as  belonging  to  the  latter." 

"If  you  and  I  could  get  together  we  could  soon  straighten 
out  the  misunderstanding  in  regard  to  your  account,  because 


I  am  sure  that  you  intend  to  give  us  fair  play,"  is  a  sentence 
used  in  handling  distant  accounts.  The  suggestion  that  the 
delinquent  should  take  a  certain  action  "in  justice  to  your- 
self" shows  a  fairness  that  calls  for  a  return  of  the  same 
quality.  It  is  a  good  plan  to  explain  the  fairness  of  the 
creditor's  terms.  This  appeal  is  useful  also  in  writing  to 
customers  who  have  been  guilty  of  abusing  the  discount  pri- 
vilege. 

Unwillingness  to  Take  Severe  Action 

Finally,  the  creditor's  expressed  unwillingness  to  take 
unpleasant  action  appeals  to  the  sense  of  fair  play.  "Please 
do  not  expect  me  to  turn  over  your  account  to  an  outside 
collector  who  will  not  have  the  same  interest  in  retaining  your 
good-will  that  I  have  personally" — "Please  do  not  force  me 
to  continue  annoying  you  with  correspondence  on  this  bill" 
— "We  do  not  enjoy  sending  out  collection  letters ;  we  prefer 
to  rely  on  our  customers'  sense  of  fair  play" — "Harsh  collec- 
tion methods  are  always  a  last  resort  with  me" — "I  gladly 
opened  this  account  with  you  thinking  it  would  be  a  service 
and  accommodation  to  you" — all  of  these  appeal  to  the  sense 
of  fair  play  but  show  that  the  debtor  will  be  injuring  himself 
by  further  resistance. 

The  Desire  to  Avoid  Annoyance 

No  one  enjoys  being  bothered  with  collection  letters,  and 
the  annoyance  of  a  "dun"  is  one  of  the  strongest  influences 
in  getting  a  debtor  to  pay.  A  collector,  for  instance,  is  more 
a  source  of  annoyance  than  of  fear.  Sometimes  a  collector 
tries  to  play  on  this  feeling  by  loud  talking  or  calling  at  incon- 
venient times,  or  even  trying  to  shame  the  debtor  by  attract- 
ing the  attention  of  outsiders.  But  a  collector  can  usually 
find  a  better  means  of  securing  payment,  especially  as  the 
means  just  referred  to  are  likely  to  arouse  anger,  together 


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164 


NEW   COLLECTION   METHODS 


with  all  the  stubbornness  the  debtor  can  feel.  "Get  this  off 
your  mind  by  slipping  a  check  into  the  enclosed  stamped  and 
self-addressed  envelope/*  is  an  appeal  to  the  desire  to  avoid 
annoyance.  "We  do  not  wish  to  annoy  you  by  letters,"  or 
still  better,  "You  do  not  wish  to  be  annoyed*'— "We  do  not 
wish  to  annoy  you,"  are  various  ways  of  saying  the  same 
thing.  "Please  pay  this  small  balance  at  once  and  avoid  the 
annoyance  of  unnecessary  correspondence" — "Our  letters 
must  be  annoying  to  you,  but  they  are  the  only  means  we  can 
employ  to  keep  you  reminded  of  the  condition  of  your  ac- 
count," are  other  ways  of  phrasing  the  same  idea. 

An  interesting  appeal  is  one  which  suggests  that  "Prompt 
payment  now  will  avoid  the  possibility  of  confusion  later 
on."  This  phrase  attracts  attention  by  its  novelty,  reminds 
the  debtor  that  it  is  easier  to  credit  a  payment  properly  if 
it  is  received  on  time,  and  that  if  he  lets  it  go  he  may  forget 
whether  he  has  paid  it  or  not,  causing  confusion  and  annoy- 
ance. The  word  "confusion,"  also,  is  a  welcome  addition  to 
the  vocabulary  of  collectors,  which  tends  to  become  somewhat 
threadbare.  It  carries  with  it  somewhat  vague  and  uncom- 
fortable suggestions  of  all  kinds  of  trouble. 

"A  past-due  account  breeds  friction — ^we  do  not  want  any 
friction  between  our  good  customers  and  ourselves,"  carries 
also  a  suggestion  of  pride. 

The  Appeal  to  Shame 

If  most  men  are  honest,  then  most  men  can  be  made  to 
feel  ashamed  of  their  action  should  they  fail  to  pay  their 
bills  when  due.  But  how  can  the  sense  of  shame  be  brought 
to  bear?  The  inexperienced  collection  man  will  make  his 
customers  angry  by  insulting  them,  where  the  experienced 
executive  will  produce  the  desired  result  by  his  courtesy  and 
fairness,  the  restraint  of  his  language,  and  the  sincere  in- 
terest he  shows  in  his  customers'  welfare.    Only  by  behaving 


APPEALS   TO   THICK-SKINNED   CUSTOMERS 


165 


better  than  your  opponent  can  you  make  him  feel  ashamed 
of  himself. 

A  summary  of  former  collection  letters,  with  the  dates 
of  letters,  etc.,  can  be  used  to  make  the  debtor  ashamed. 
"We  find  that  we  sent  you  statements  on  May  i  and  May 
15,  followed  by  letters  on  May  25  and  June  2.  To  none  of 
these  have  we  had  a  reply.  We  believe  we  have  shown  our 
desire  to  deal  fairly  with  you  in  this  matter,  and  unless  we 
hear  from  you  on  receipt  of  this  letter  we  shall  draw  through 
your  local  bank." 

Phrases  that  Awaken  Shame 

Various  phrases  that  awaken  the  sense  of  shame  are  the 
following:  "This  small  balance  for  goods  purchased  last 
year" — "Most  of  our  customers  are  scrupulously  careful  about 
their  obligations,  and  we  believe  you  feel  in  the  same  way 
in  spite  of  your  apparent  neglect  of  our  various  communica- 
tions"— "It  is  so  easy  for  you  to  write  a  letter  that  the  least 
we  can  expect  is  an  explanation" — "Your  letter  of  January 
15  assured  us  that  we  should  have  a  substantial  payment  by 
the  end  of  the  week.  It  is  now  the  25th  and  we  have  not 
heard  from  you" — "We  must  express  our  disappointment  at 
the  fact  that  no  reply  has  been  received  to  what  we  con- 
sidered an  unusually  fair  offer  to  make  it  possible  for  you 
to  settle  your  pending  obligation  and  to  allow  the  goods  now 
ordered  to  go  forward" — "I  do  not  want  you  to  feel  that  we 
are  in  any  way  treating  you  unfairly  in  asking  you  to  reply 
promptly  to  our  letters" — "What  would  you  think  of  a  man 
who  received  merchandise  and  failed  to  pay  for  it?"  (This 
should  be  given  in  some  detail.  It  is  the  famous  "Thou  art 
the  man"  story,  based  on  Nathan's  exposure  of  David's 
wrong-doing  as  narrated  in  II  Samuel  12.  It  is  a  dramatic 
device  with  the  advantage  of  suspense,  awakening  curiosity.) 

"Please  do  not  postpone  longer  a  definite  reply" — "When 


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NEW   COLLECTION   METHODS 


APPEALS   TO   THICK-SKINNED   CUSTOMERS 


167 


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you  ordered  goods  from  us  you  accepted  a  credit  obligation" 
"We  have  endeavored  to  co-operate  with  you,  but  ap- 
parently without  success"— "Please  let  us  know  why  you  are 
withholding  payment"— "Payment  has  been  repeatedly  re- 
quested"— "Please  pay  this  small  balance  at  once — it  is  not 
really  worth  while  spending  so  much  effort  upon  as  we 
seem  to  have  been  obliged  to  give  to  it"— "You  realize  surely 
that  with  a  large  volume  of  small  accounts  prompt  payment 
is  absolutely  essential,  and  we  trust  you  will  not  further 
withhold  payment  from  us"— "We  cannot  forbear  from  say- 
ing that  it  seems  to  us  our  past  leniency  (past  satisfactory 
relations,  etc.)  entitles  us  at  least  to  an  answer  to  our  various 
communications/  * 

Shame  and  Family  Affection 

"The  only  explanation  which  I  can  find  for  your  action 
is  that  it  would  be  impossible  for  you  to  make  payment  at 
the  present  time  without  causing  yourself  or  those  dear  to 
you  great  suffering.  Is  that  correct?"  (Used  by  a  success- 
ful retailer  with  remarkable  effect.  By  seeming  to  condone 
with  the  customer  in  some  personal  misfortune,  he  shames 
him  into  payment.  He  also  uses  the  sentence,  "There  was, 
I  suppose,  some  unhappy  reason  for  your  failure  to  pay.") 

Any  references  to  the  creditor's  fairness,  to  the  credit  he 
has  extended,  or  the  favors  he  has  shown  in  the  past  can  be 
used  to  awaken  the  customer's  sense  of  shame. 

An  open  threat  to  shame  a  delinquent  by  taking  public 

action  is  the  strongest  means  of  appealing  to  this  sense,  but 

is  used  only  as  a  last  resort  because  it  always  awakens  anger. 

Such  sentences  as  the  following  illustrate  this  method.    These 

awaken  fear  as  well  as  shame. 

"We  should  very  much  regret  taking  this  action,  as  it 

would  result  in  the  facts  of  the  case  being  known  to  the 

trade  in  general." 


"If  this  draft  is  presented  at  your  bank,  it  will,  we  feel, 
cast  an  unfavorable  reflection  upon  your  financial  standing." 

"The  calls  of  a  collector  at  your  home  might  make  an 
unpleasant  impression  on  your  friends,  and  consequently  we 
are  very  reluctant  to  be  forced  to  take  this  means  of  securing 
payment." 

"We  feel  that  in  justice  to  you  we  should  use  every 
attempt  to  get  settlement  of  the  account  you  owe  us,  because 
otherwise  at  the  end  of  this  month  we  shall  be  obliged  to 
send  in  your  name,  according  to  our  agreement,  to  the  local 
credit  bureau,  where  it  will  be  listed  and  the  facts  of  your 
unwillingness  to  pay  will  be  known  to  the  other  merchants 
of  the  city." 

"You  are  of  course  aware  that  a  list  of  persons  con- 
cerned in  court  proceedings  is  known  to  a  very  large  number 
of  persons,  so  that  if  we  enter  suit  against  you,  not  only  are 
we  certain  of  obtaining  judgment,  but  the  fact  that  you  have 
once  been  sued  for  an  account  will  reflect  upon  your  standing 
and  will  make  it  less  easy  for  you  to  do  business  in  the 
future." 

The  Appeal  to  Fear 

"All  diplomacy,"  says  a  famous  diplomat,  "is  but  the 
threat  of  force."  The  ability  to  enforce  one's  rights  is  a 
necessity  if  one's  persuasion  is  to  gain  a  respectful  hearing. 
The  man  whose  language  and  bearing  carries  authority  will 
secure  more  attention  by  a  word  than  a  weakling  will  gain 
by  a  half -hour's  bluster. 

The  attempt  to  frighten  the  debtor  is  sometimes  like  the 
old-fashioned  blunderbuss,  more  dangerous  to  the  man  who 
shoots  it  off  than  to  the  target.  If  used  too  strongly  where 
circumstances  do  not  warrant  it,  the  debtor,  instead  of  being 
terrified,  will  grow  angry  and  delay  payment  as  long  as 
possible;    or   he   may    feel    contempt    for   a   creditor    who 


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i68 


NEW   COLLECTION   METHODS 


threatens  more  than  he  can  perform.  It  destroys  good- will. 
A  safe  rule  to  follow  is  that  letters  from  the  creditor 
himself  should  never  contain  more  than  a  mere  suggestion 
of  the  appeal  to  fear.  If  finally  considered  advisable  the 
account  may  be  turned  over  to  an  outside  agency  with  in- 
structions to  use  the  best  skill  it  possesses;  but  even  the  out- 
side agency  is  usually  most  successful  when  it  shows  leniency 
and  appeals  to  fairness,  pride,  and  self-interest  while  keeping 
the  show  of  force  in  the  background.  Only  in  dealing  with 
ignorant  and  inexperienced  debtors  who  are  able  to  pay  but 
stubbornly  determined  not  to,  will  vigorous  threats  be  of 
much  service. 

The  Lion's  Imagination 

Lion-tamers  are  said  to  carry  in  the  right  hand  a  whip 
and  in  the  left  hand  a  rod.  Though  they  may  lash  the  beast 
repeatedly  with  the  whip,  they  make  only  a  feint  of  striking 
him  with  the  rod.  The  lion  beheves  a  terrible  power  to 
reside  in  the  rod,  and  since  he  never  feels  it  he  continues  to 
fear  it.    The  lion  is  subdued  by  his  imagination. 

Whether  true  or  not,  the  story  is  a  good  parallel  to  the 
collection  man's  use  of  fear.  He  continually  uses  "moral 
suasion"  with  his  debtors,  touching  them  by  appeals  to  pride, 
fair  play,  self-interest,  shame,  etc.  But  he  makes  only  a 
feint  of  striking  them  with  the  authority  of  the  law.  If  the 
case  gets  beyond  him  he  is  likely  to  turn  it  over  to  the 
attendant  with  the  pitchfork.  But  let  us  not  push  the  analogy 
too  far. 


Classif3dng  Customers 

The  classification  of  debtors  into  good  pay,  slow  pay,  and 
poor  pay,  on  the  basis  of  past  experience  or  credit  informa- 
tion, guides  the  credit  man  in  his  use  of  the  appeal  to  fear. 
In    his    reminders   to    good-pay    customers    he    will    carry 


APPEALS   TO  THICK-SKINNED   CUSTOMERS         169 

courtesy  and  leniency  to  the  extreme,  though  he  continually 
"presses  the  button"  of  the  various  appeals  that  are  likely 
to  make  a  spark  in  the  debtor's  nervous  system  and  set  fire 
to  the  train  of  action.  The  slow-pay  customer  will  receive 
a  little  more  vigorous  treatment,  while  the  poor-pay  customer, 
if  delinquent,  finds  his  affair  pressed  rapidly  to  a  conclusion. 

Phrases  That  Suggest  Urgency 

Certain  words  and  phrases  always  carry  the  suggestion  of 
urgency  and  should  be  used  with  care,  especially  when  writ- 
ing to  a  sensitive  customer,  lest  they  destroy  good-will.  With 
previous  delinquents  they  can  be  used  more  freely.  The  col- 
lection man  should  have  the  customer's  record  before  him; 
then,  if  he  writes  less  strongly  than  the  occasion  seems  to 
demand,  he  will  probably  say  about  the  right  thing.  The 
following  phrases  are  given  in  the  order  of  their  strength: 

1.  Reference  to  past  unanswered  correspondence. 

2.  "Immediately"    or    "at   your  earliest   convenience," 

when  applied  to  a  letter  or  remittance. 

3.  Mention  of  a  definite  date  as  "by  July  6,"  "in  three 

days,"  or  "by  return  mail." 

4.  A  command,  as,  "Let  us  hear  from  you,"  or  "Send 

us."  To  preface  these  phrases  by  "please"  makes 
them  more  courteous.  Still  milder  is  a  question, 
as,  "Will  you  not  let  us  hear  from  you?"  or  a 
conditional  statement,  as,  "If  you  will  let  us  hear 
from  you,  we  shall  be  greatly  obliged."  Much 
more  sharp  than  "Please  let  us  hear,"  is  "Kindly 
let  us  hear." 

5.  The  words  "must,"  "be  compelled  to,"  "demand/' 

"require,"  "insist,"  "it  is  imperative." 

6.  "Delinquent,"  or  "slow  pay." 

7.  A  veiled  threat,  like  a  reference  to  "other  measures," 

or  specific  mention  of  an  attorney  or  agency. 


f  I 


170 


NEW   COLLECTION   METHODS 


Usually  one  sharp  phrase  in  a  letter  is  more  effective  than 
several.  The  effect  of  such  a  phrase  can  be  varied  by  putting 
it  in  various  positions;  at  the  end  of  a  letter  it  has  an 
emphasis  like  the  crack  of  a  whip;  but  buried  in  a  paragraph 
and  followed  by  pleasant  language,  it  stings  without  leaving 
a  scar. 


I  > 


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Increasing  Severity 

The  chief  appeal  to  fear  is  through  an  evident  advance  in 
the  severity  of  the  tone  adopted  in  interviews  or  letters. 
Never  allow  a  debtor  to  become  perfectly  sure  of  the  steps 
that  are  to  be  taken.  If  you  do,  he  soon  learns  to  discount 
them  in  advance,  and  to  wait  as  long  as  patience  allows. 
With  a  good  customer  who  has  not  previously  been  delin- 
quent, the  various  stages  of  notification,  reminder,  discussion, 
draft,  outside  collector,  and  suit  might  be  gone  through. 

Other  phrases  that  appeal  to  fear  are  the  following: 

"We  should  regret  very  much  to  feel  that  you  were 
purposely  neglecting  your  account." 

"We  shall  be  obliged  to  proceed  (take  it  that  you  wish 
us  to  proceed)  in  the  usual  manner  (to  take  our  customary 
action).**  (This  reference  to  customary  action  shows  that 
the  creditor  is  certain  of  success.) 

"A  copy  of  this  letter  will  be  held  as  a  meriiorandum  in 
my  files  for  ten  days.*' 

"You  realize  that  it  would  be  a  serious  matter  for  you  to 
jeopardize  your  credit  standing  by  further  postponement  of 
this  settlement.** 

"We  are  sure  you  do  not  wish  your  friends  and  neigh- 
bors to  be  embarrassed  by  any  questions  our  attorney  might 
ask  about  you.** 

"While  you  may  be  personally  entirely  willing  to  run 
your  chances  of  court  action,  we  trust  that  you  will  remem- 
ber the  unpleasantness  this  would  bring  upon  those  near  and 


APPEALS   TO   THICK-SKINNED   CUSTOMERS  171 

dear  to  you,  and  that  you  will  not  oblige  us  to  begin  pro- 
ceedings that  would  be  attended  by  unpleasant  consequences.** 
(This  appeals  also  to  family  affection.) 

The  warning  or  notification  of  the  draft  carries  with  it 
some  element  of  fear  and  annoyance,  and  it  is  sometimes 
advisable  to  write  in  a  manner  which  will  increase  this  feel- 
ing in  the  customer. 

The  mention  of  referring  the  account  to  some  other  per- 
son carries  with  it  a  degree  of  fear,  proportionate  to  the 
authority  of  that  person  and  his  power  to  inflict  annoyance, 
to  cause  shame,  loss  of  credit,  of  business  opportunity,  of 
reputation,  of  money,  etc.  Thus  the  account  may  be  referred 
to  the  collection  department,  the  credit  department,  the  credit 
manager — mentioning  him  by  name — the  controller,  the 
bursar,  a  special  collector  inside  the  house,  an  outside  col- 
lector, a  collection  agency,  or  an  attorney. 

The  Appeal  to  Curiosity 

Can  curiosity  be  used  by  the  collection  man?  The 
beginning  of  a  collection  letter  may  be  so  cleverly  handled, 
especially  if  this  beginning  is  a  story,  that  the  reader  is 
curious  to  see  how  it  will  end  and  reads  through.  But  sup- 
pose curiosity  is  awakened  by  the  first  letter  of  a  series;  the 
result  will  be,  as  the  popular  joke  has  it,  that  he  will  wait  to 
see  what  the  creditor  has  to  say  next  and  will  postpone 
payment  until  he  gets  the  whole  series.  The  creditor  is  not 
in  the  business  of  providing  entertainment  to  delinquents, 
and  if  he  is  wise,  he  will  cut  the  customer*s  amusement  short 
with  a  draft  or  a  call  from  an  attorney.  Incidentally,  it  is 
a  good  principle  not  to  write  two  clever  letters  in  succession, 
but  to  follow  up  a  good-natured  appeal  by  a  severe  one. 

A  letter  sometimes  used  by  agencies  and  others  contains 
the  sentence,  "Unless  you  do  so,  we  shall  be  obliged  to  take 
steps  that  will  cause  you  the  greatest  astonishment."     When 


172 


NEW    COLLECTION   METHODS 


I 


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y  11 


,1 
•f 


this  brings  in  the  money,  it  does  so  by  stimulating  the 
debtor's  fear  through  his  imagination.  He  is  not  at  all  curious 
to  find  out  what  will  happen  to  him — he  does  not  want  to 
find  out — ^but  the  novel  phrase  surprises  him  and  he  pays  on 
impulse.  (See  pages  175-178.)  If  he  were  really  made 
curious,  he  would  postpone  the  payment  and  wait  '*to  see 
what  came  out  of  the  box." 

Appeal  to  Saving  and  Acquisitiveness 

The  desire  to  save  money  or  to  make  it  can  sometimes 
be  used  by  a  creditor  who,  despairing  of  collection  in  full 
and  not  wishing  to  undertake  suit,  may  offer  the  delinquent 
a  slight  discount  for  payment  within  a  set  time,  or  a  bonus 
either  in  the  form  of  cash,  a  book,  an  article  from  stock,  etc. 
These  methods  are  rarely  used  except  with  customers  to 
whom  only  a  single  sale  is  made,  or  from  whom  orders  will 
no  longer  be  accepted.  They  are  sometimes  used,  however, 
by  creditors  who  are  conscious  that  the  customer  has  been 
"oversold,"  or  that  the  goods  sold  him  were  not  worth  the 
full  purchase  price.  What  these  business  men  need  is  educa- 
tion as  to  methods  of  sale  rather  than  methods  of  collection. 

In  a  great  emergency,  it  may  be  decided  to  extend  the 
usual  discount  as  an  inducement  for  prompt  payment.  One 
such  letter  reads  "In  view  of  the  special  circumstances  exist- 
ing at  this  time  we  have  decided  to  offer  our  customers  a 
bonus  of  2%  for  all  payments  made  on  or  before  March  i. 
This  will  be  given  as  an  appreciation  for  the  good-will  shown 
in  the  prompt  remittance."  The  frank  appeal  to  good-will 
preserves  the  offer  from  appearing  as  a  sign  of  weakness. 

A  concern  selling  cigars  by  mail  with  terms  cash  ten  days 
after  receiving  goods  and  privilege  of  sampling  the  contents, 
at  one  time  wrote  to  certain  delinquents  over  the  signature  of 
its  president. 

"I  am  not  going  to  turn  your  account  over  to  a  collection 


APPEALS  TO  THICK-SKINNED   CUSTOMERS         173 

m 

agent  who  will  hound  you  and  annoy  you  and  destroy  any 
good-will  you  may  still  feel  for  me  and  my  cigars,  besides 
demanding  for  his  services  50%  oi  the  amount  you  owe  me. 

"Here  is  what  I  have  determined  to  do.  I  will  make  you 
your  own  collection  agency.  The  amount  now  due  is  $10.75. 
Simply  mail  me  your  check  for  $5.38  and  I  will  send  you  a 
bill  receipted  in  full,  showing  50%  cash  and  50%  collector's 
fees.    Send  me  this  check  quickly  before  I  change  my  mind." 

The  danger  of  this  method  is  that  the  dishonest  smoker 
of  cigars  might  spread  the  good  word  among  his  acquain- 
tances that  he  knew  a  place  where  you  could  buy  cigars  for 
half-price. 

The  most  common  form  of  the  savings  appeal  is  made 
when  the  creditor  hints  at  the  expense  of  legal  proceedings, 
which  must  be  borne  by  the  debtor.  To  a  stubborn  debtor, 
this  can  be  said  good-naturedly:  "You  know  well  enough 
that  you  must  pay  for  every  step  we  take — why  force  us 
into  action  that  costs  you  money?" 

The  Desire  for  Success 

The  appeal  to  this  desire  is  implied  in  all  sincere  resale 
or  constructive  letters,  and  it  can  be  employed  in  connection 
with  other  appeals.  "We  are  sincerely  interested  in  your 
success  and  make  these  suggestions  with  your  own  interest 
in  view" — this  appeals  also  to  pride  and  self-interest.  It  can 
be  combined  with  the  appeal  to  fear,  as,  "Unless  you  meet 
your  obligations  fairly,  you  cannot  hope  to  win." 

Other  Appeals 

The  instinct  of  imitation  is  made  use  of  when  the  creditor 
says,  "We  find  on  investigation  that  90%  of  our  customers 
pay  on  presentation  of  the  statement,"  or  "It  is  certainly 
very  pleasant  to  have  our  confidence  supported  by  an  analysis 
of  our  business  recently  made,  which  discloses  the  fact  that 


T' 


I 


^74 


NEW  COLLECTION  METHODS 


only  a  fraction  of  one  per  cent  of  our  customers  are  ever 
seriously  delinquent."  This  not  only  appeals  to  pride,  but 
suggests  that  the  example  of  these  customers  be  followed. 

Competition  may  be  excited.  Certain  towns  using  the 
"Pay-Up  Week"  scheme  have  by  means  of  a  cash  prize 
stimulated  the  townspeople  to  see  who  would  pay  the  largest 
amount.  Competition  between  salesmen  to  make  a  good 
showing  in  collection  from  their  respective  territories  should 
always  be  employed. 

Finally,  the  motive  of  patriotism  can,  with  entire  justice, 
be  appealed  to  in  collection.  The  creditor  who  educates  his 
trade  to  sound  business  habits  and  prompt  payments,  by  so 
doing  confirms  and  strengthens  the  credit  stability  of  this 
country  and  performs  a  national  service.  There  are  many 
credit  men,  let  it  be  said  with  pride,  who  are  entitled  to  the 
honor  of  using  this  appeal  by  virtue  of  the  broad-minded 
business  statesmenship  they  have  displayed  in  their  country's 
time  of  need. 

The  Appeal  to  Pity 

Business  men  long  ago  discovered  that  it  was  unbusiness- 
like to  appeal  to  the  pity  of  their  customers  as  a  means  of 
securing  payments.  The  plea,  "We  need  the  money,"  is  no 
longer  offered  as  an  excuse  for  the  efforts  of  the  collection 
man;  some  less  humiliating  statement  of  the  fact  may  be 
employed  to  show  the  debtor  quietly  but  firmly  that  the 
creditor  cannot  afford  to  be  overindulgent.  Professional 
men,  however,  often  fail  to  realize  that  to  appeal  from  a 
position  of  strength  brings  better  results  than  to  appeal  from 
a  position  of  weakness. 

One  who  was  the  football  of  fortune,  Oliver  Goldsmith, 
learned  through  bitter  experience  the  truth  of  the  matter. 
In  the  third  number  of  The  Bee  he  expresses  the  philosophy 
of  Jack  Spindle,  a  beggar:  that  to  have  much  or  to  seem  to 


APPEALS  TO  THICK-SKINNED   CUSTOMERS         175 

have  it  is  the  only  way  to  have  more,  since  it  is  the  man  who 
has  no  occasion  to  borrow  that  alone  finds  numbers  willing 
to  lend.  "You  then,  oh  ye  beggars  of  my  acquaintance," 
exclaims  Spindle,  "whether  in  rags  or  lace,  whether  in  Kent 
Street  or  the  Mall,  whether  at  Smyrna  or  St.  Giles',  might  I 
advise  you  as  a  friend,  never  to  seem  in  want  of  the  favour 
you  solicit.  Apply  to  every  passion  but  pity  for  redress. 
You  may  find  relief  from  vanity,  from  self-interest,  or  from 
avarice,  but  never  from  compassion." 

Combining  Appeals 

As  is  suggested  by  the  diagram  on  page  136,  appeals  to 
the  sense  of  advantage  can  be  combined  with  appeals  to  the 
sense  of  obligation  in  different  proportions  as  the  procedure 
advances.  A  letter  that  begins  strongly  and  ends  mildly  is 
one  that  contains  an  appeal  to  shame  or  fear  re-enforced  by 
appeal  to  pride.  If  it  begins  mildly  and  ends  more  strongly 
it  probably  contains  an  appeal  to  pride  or  good-will  followed 
by  a  threat  of  stronger  measures  that  appeal  to  the  sense  of 
fear.  The  letter  which  ends  more  mildly  than  it  begins,  more- 
over, has  the  effect  of  leniency  and  arpuses  good-will. 

Surprise  and  Impulse 

Every  collection  manager  who  prepares  a  series  of  col- 
lection letters,  or  every  sales  manager  who  has  to  handle  a 
sales  follow-up,  is  acquainted  with  the  principles  of  surprise 
and  impulse,  though  possibly  he  has  not  given  them  a  name. 
Variety  is  more  than  the  spice  of  life  in  collections — it  is 
life  itself,  for  the  follow-up  letters  which  have  no  variety 
are  dead  indeed.  If  collection  procedure  always  travels  the 
same  road,  the  delinquent  debtor  anticipates  its  steps,  and 
discounts  in  advance  the  means  that  will  be  taken  to  bring 
him  to  payment.  For  example,  one  large  house  which  had 
always  employed  first  a  statement,  then  a  draft,  and  then 


II 


i 


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hi 


I' ' 


ffs 

C)4 


•I 
i: 


176 


NEW    COLLECTION   METHODS 


a  letter  inquiring  why  the  draft  was  dishonored,  discovered 
that  a  great  proportion  of  its  drafts  were  dishonored.  In- 
vestigation showed  that  the  same  customers,  at  fairly  fre- 
quent intervals,  overstepped  their  time  limit  and  refused  to 
pay  the  draft  sent  them,  knowing  from  experience  that  the 
house  would  allow  two  weeks  to  pass  before  sending  the 
account  to  an  attorney.  This  likewise  is  the  danger  of  an 
unchanged  series  of  form  letters.  The  customer  recognizes 
the  stock  language,  for  he  has  received  them  before,  and 
waits  until  the  entire  series  has  spent  itself  and  until  real 
pressure  is  applied.  Abundant  variety  in  forms  is  necessary 
if  they  are  to  produce  surprise. 

The  familiar  story  of  the  debtor  who  failed  to  reply  to 
form  collection  letters  because  he  wanted  to  get  the  entire 
series  to  use  on  his  own  delinquents,  has  gone  the  rounds 
often  enough  to  warn  us  of  the  weakness  of  a  series  of  un- 
changed forms.  Any  collection  procedure,  whether  of  drafts, 
forms,  or  dictated  letters,  which  repeats  itself  frequently  to 
the  same  customer,  presently  loses  its  teeth,  and  fails  to 
arouse  the  debtor  to  action. 

Any  man  who  becomes  delinquent  for  reasons  not  under 
his  control,  and  who  has  kept  his  creditor  informed  of  his 
position,  can  rely  on  his  own  good  reputation  to  insure  that 
the  creditor  will  take  no  unexpected  steps.  But  even  the 
good-pay  customer,  and  certainly  the  poor-pay  customer,  is 
stimulated  to  action  by  uncertainty  as  to  what  steps  the 
creditor  will  take  next. 

The  Turn  in  the  Road 

One  collection  manager  of  considerable  success  told  of 
how  this  principle  became  impressed  upon  his  own  mind. 
His  suburban  home  was  located  on  a  shady  road  which  a 
few  hundred  yards  away  made  an  abrupt  curve. 

"I  often  sit  on  my  piazza,"  said  this  man,  "and  wonder. 


APPEALS   TO   THICK-SKINNED   CUSTOMERS 


^77 


'What  will  come  around  that  bend  in  the  road?'  One  day 
it  occurred  to  me,  'Have  my  collection  letters  that  perpetual 
spice  of  interest,  or  do  my  customers  when  they  get  the  first 
one  know  what  the  last  one  will  be?*  Then  and  there  I 
made  up  my  mind  that  no  man,  not  even  the  best  customer 
on  our  list,  should  ever  be  able  to  tell  in  advance  what  was 
coming  around  the  turn  of  the  road."  Fortunately  the 
methods  of  collection  are  so  numerous  that  variety  and 
surprise  are  by  no  means  difficult  to  produce. 

A  great  deal  of  the  success  of  advertising  is  due  to  the 
pleasant  surprise  it  has  given  to  a  public  accustomed  to  cut* 
and-dried  methods  of  sale.  In  like  manner  the  collection 
letters  which  use  various  appeals,  and  which  give  evidence 
of  an  alert  mind  which  can  adapt  itself  to  the  problem  in 
hand,  succeed  not  only  because  of  the  logic  of  their  method, 
or  because  they  have  touched  precisely  the  right  emotion 
which  serves  as  a  spring  of  action,  but  partly  because  they 
are  "different." 

Impulse 

The  companion  to  the  principle  of  surprise  is  the  principle 
of  impulse. 

Though  men  are  reasoning  beings,  and  an  imdercurrent 
of  logical  conviction  always  aids  in  determining  our  actions, 
still  most  of  our  decisions  are  made  on  impulse.  A  certain 
course  seems  reasonable  and  so  we  adopt  it,  because  a  deci- 
sion must  be  made.  This  principle  comes  to  the  aid  of  the 
collection  manager  who  writes  courteous  letters  with  an 
appeal  to  reason.  Most  men,  even  those  who  are  occasionally 
dishonest,  are  good-natured,  and  will  oblige  a  man  who  treats 
them  decently.  Suppose  such  a  man  receives  a  reasonable 
letter  in  the  same  mail  with  less  reasonable  letters  from  other 
houses.  The  first  letter  suggests  a  reason  why  he  should 
pay;  the  others  are  mere  demands.     Without  troubling  him- 


m. 


178 


NEW   COLLECTION   METHODS 


i 


U  : 


self  to  remember  that  he  should  treat  all  his  creditors  alike, 
the  delinquent  acts  on  impulse  and  pays  the  account  of  the 
house  that  has  given  him  what  he  calls  "good  treatment." 

"I  have  just  had  a  lesson  on  collections  from  the  home 
office,"  remarked  a  salesman  of  the  National  Cash  Register 
Company.  "There  are  a  couple  of  men  here  in  town  who  owe 
me,  and  owe  about  everybody  else — ^poor  skates,  who  never 
have  done  a  successful  business  and  never  will.  Yet  the 
credit  man  has  been  writing  them  kind,  polite  letters,  asking 
them,  'Can  you  tell  us  whether  there  is  any  reason  why  you 
should  not  pay?'  Ridiculous!  Any  reason?  Why,  there 
were  any  number  of  reasons,  beginning  with  the  fact  that 
they  didn't  have  the  money.  Next  time  I  went  to  Dayton 
I  began  to  remonstrate  with  him.  *Go  back  to  your  selling,' 
he  told  me.  'You  don't  know  anything  about  this  collec- 
tion business.  Those  poor-pay  fellows  are  used  to  being  hit 
oyer  the  head  by  every  one  of  their  creditors,  and  when  a 
courteous  letter  comes  along,  that  looks  as  if  we  appreciated 
their  business,  it  surprises  them  so  that  they  pay  us  in 
preference  to  the  other  fellows.'  And,"  concluded  the  cash 
register  salesman,  "I  believe  he  was  right." 


CHAPTER    XVIII 

COLLECTION   PROCEDURE— EARLY  STAGES 

Questions  of  Procedure 

What  is  the  best  procedure  to  follow  in  collection?  How 
far  apart  should  letters  be  sent?  How  many  statements 
should  be  sent  before  writing  letters  at  all?  How  long 
should  an  account  run  before  being  turned  over  to  an  out- 
side agency?  These  are  only  a  few  of  the  questions  which 
confront  the  credit  or  collection  man  in  establishing  a  pro- 
gram for  his  collection  procedure. 

Chapters  XXX  to  XXXIV,  on  unusual  credit  risks,  con- 
tain a  detailed  analysis  of  several  carefully  worked  out 
collection  procedures,  rich  in  suggestion  to  the  collection  man 
no  matter  what  the  nature  of  his  business.  Some  of  the  most 
valuable  letters  together  with  a  chart  of  collection  procedure 
(pages  370,  371)  are  in  those  chapters. 

In  Chapters  XXII  to  XXV  is  an  analysis  of  the  methods, 
together  with  the  letters,  of  several  of  the  most  widely  known 
mercantile  houses  in  the  country,  which  because  of  the  great 
volume  of  their  business  have  been  obliged  to  reduce  the  steps 
taken  by  their  credit  department  to  careful  routine  and  to 
make  large  use  of  form  letters. 

The  problem  of  handling  form  letters  is  taken  up  in 
Chapter  XXXIX.  Chapters  XVIII  to  XXI  contain  an 
analysis  of  the  methods  which  in  this  chapter  are  shown  as 
used  in  series  under  various  conditions. 

General  Advice 

The  general  advice  of  the  good  credit  man  is,  "Give  them 
good  treatment  if  they  are  worthy,  and  clear  your  books  of 

179 


i8o 


NEW   COLLECTION   METHODS 


the  doubtful  cases."  That  is,  maintain  the  good-will  of  those 
who  are  deserving  of  the  privilege,  but  do  not  spend  energy 
on  customers  from  whom  nothing  is  to  be  had;  put  your 
efforts  instead  into  constructive  and  paying  business.  The 
problem  in  general  is  first,  how  to  show  good  treatment  that 
nevertheless  will  bring  in  the  money  as  rapidly  as  the  debtor 
can  possibly  pay  it,  and  second,  how  to  devise  methods, 
whether  handled  inside  the  office  or  by  an  outside  collection 
agency,  that  will  leave  the  credit  man  free  to  put  iu  his  time 
where  it  will  count  for  most. 

Severity  in  the  early  stages  is  to  be  avoided.  "When  I 
was  learning  the  business  under  our  president,"  says  a  well- 
known  credit  man,  "he  used  to  say  to  me,  'You  know  how  it 
was  when  you  were  catching  horses  in  the  pasture.  You  had 
a  tuft  of  grass  in  one  hand  and  a  brick  in  the  other.  First 
throw  him  a  tuft  of  grass  and  then  throw  him  the  brick,  but 
always  throw  him  the  tuft  of  grass  first.' 


>  f» 


The  Stages  of  Collection  Procedure 

In  general  outline  it  may  be  said  that  the  collection  pro- 
cedure has  six  stages: 

Sale  and  Resale 

Notification 

Reminder 

Discussion 

Urgency 

Ultimatum 

Even  in  advance  of  these  stages  there  is  another  period, 
during  which  prestige  begins  to  produce  its  effect. 

The  Effect  of  Prestige 

Collection  begins  even  before  the  goods  are  sold,  with  the 
impression  made  on  the  future  customer's  mind  by  the  pres- 


COLLECTION   PROCEDURE^EARLY   STAGES 


l8l 


tige  of  the  house.  It  will  give  protection  against  dishonest 
tactics.  A  famous  credit  manager  says,  "When  I  was  a 
young  man  in  the  employ  of  Marshall  Field's  wholesale 
house,  they  had  a  reputation  of  always  collecting  one  hundred 
cents  on  the  dollar.  Whether  this  reputation  was  deserved 
or  not,  it  had  a  powerful  effect,  and  merchants  who  were 
intending  to  fail  and  to  reopen  saw  to  it  that  when  their 
books  were  closed  they  owed  Marshall  Field  nothing.  Other- 
wise, they  believed,  they  could  never  buy  goods  there  again." 

A  common  saying  descriptive  of  character  is,  "He's  the 
kind  of  man  who  pays  his  bills."  Another  might  well  be 
coined,  "He  is  the  kind  of  man  who  gets  his  bills  paid." 
The  prestige  of  a  great  merchandising  house  runs  far  in 
advance  of  its  operations,  and  customers  when  buying  their 
first  bill  of  goods  from  it  thoroughly  expect  to  pay. 

What  is  the  secret  of  the  marvelous  reputation  which 
such  houses  enjoy?  The  quality  of  their  goods  is  high,  their 
financial  position  is  sound,  their  skill  and  power  as  buyers 
are  great,  their  understanding  of  merchandising  is  unpar- 
alleled, their  determination  to  get  their  dues  is  fixed;  but 
above  all  these  their  integrity  is  unquestioned.  The  single 
word  "character"  sums  it  up.  The  man  with  character  has 
means  of  securing  his  rights  and  one  result  is  that  he  has 
less  occasion  to  enforce  them.  The  customer  who  desires 
credit  from  such  a  house  knows  that  he  must  "pay  the  price." 

The  Stage  of  Sale  and  Resale 

If  the  advertising  of  a  house  has  an  imtruthful  sound 
and  the  values  offered  therein  are  questionable,  it  will  be 
harder  to  collect  payment  for  the  goods  sold.  If  the  ad- 
vertising is  too  emphatic  and  induces  the  purchaser  to  expect 
more  than  can  reasonably  be  had  in  the  merchandise  at  the 
price  quoted,  the  resulting  dissatisfaction  will  be  felt  in 
harder  collections.    If  a  salesman  oversells  the  customer  and 


i 

I 
ill  ;■ 


rt 


ii» 


182 


NEW   COLLECTION   METHODS 


loads  his  shelves  with  merchandise  he  cannot  dispose  of,  or 
offers  him  inducements  that  the  house  will  not  substantiate, 
the  collection  department  will  feel  the  effects  of  these  bad 
sales  policies.  The  insurance  company  which  oversells  is 
punished  by  lapses,  the  book  company  which  oversells  finds 
its  collection  lengthy  and  expensive  and  is  obliged  to  take 
back  many  of  its  volumes.  "Even  in  selling  for  strictly 
cash,"  says  Henry  Schott,  manager  of  publicity  for  Mont- 
gomery Ward  &  Co.,  "we  take  the  utmost  pains  to  undersell 
rather  than  to  oversell  in  our  catalogue  descriptions  lest  the 
purchaser  on  receiving  the  goods  be  dissatisfied  and  take 
advantage  of  our  guarantee  to  return  his  purchase."  The 
credit  and  collection  managers  should  have  a  voice  in  deter- 
mining sales  and  advertising  policies. 

Resale  can  be  carried  on  throughout  the  period  of  the 
relation  between  the  customer  and  the  house.  The  jobber 
can  continually  educate  the  retail  merchant  in  the  principles 
of  credit  and  their  mutual  advantage  in  maintaining  them. 
Every  opportunity  can  be  taken  to  increase  the  satisfaction 
and  profit  the  purchaser  finds  in  the  goods  he  has  bought. 
Some  companies  even  follow  up  for  a  considerable  period 
purchasers  who  have  made  a  "once-in-a-lifetime"  purchase, 
in  order  to  prevent  friction  arising  over  repairs  and  adjust- 
ments, and  to  increase  the  good-will  which  will  make  possible 
sales  to  the  purchaser's  friends.  An  instalment  house  is 
losing  a  marvelous  opportunity  if  it  does  not  conduct  a 
regular  resale  campaign  from  the  moment  the  order  is  taken 
to  the  time  the  final  receipt  is  mailed  to  the  customer;  the 
cost  of  this  would  be  paid  many  times  over  from  the  ex- 
pense of  collections  and  lapsed  payments.  This  resale  pro- 
gram need  not  be  carried  on  entirely  by  direct  mail,  though 
this  is  the  medium  which  comes  naturally  to  mind;  an  ap- 
parently accidental  call  from  a  salesman,  a  letter  asking  for 
the  names  of  other  possible  prospects,  or  a  telephone  call. 


Vi 


COLLECTION   PROCEDURE-EARLY   STAGES  183 

may  serve  the  purpose  at  small  expense.  Regular  advertising 
in  newspapers  and  magazines  can  lay  emphasis  on  the  solid 
benefits  enjoyed  by  a  purchaser,  and  such  advertising  will 
tend  to  keep  previous  customers  thoroughly  "sold"  on  the 
merits  of  their  investment.  This  very  important  aspect  of 
advertising  is  just  beginning  to  be  recognized. 

As  is  pointed  out  in  Chapter  VII,  "Selling  and  Reselling 
Credit,"  resale  does  not  come  to  an  end  by  any  means  when 
deUnquency  begins,  but  should  be  carried  on  with  renewed 
earnestness  and  ingenuity  at  the  first  sign  of  slowness  in  pay- 
ment. Remember  that  resale  does  not  mean  merely  reselling 
the  goods,  but  reminding  the  customer  skilfully  of  services 
rendered  and  of  the  value  to  him  of  sound  credit. 

The  Stage  of  Notification 

Accurate  records,  like  sound  credits,  are  built  into  the 
basis  of  good  collecting,  and  the*  system  of  an  office  must  be 
such  that  mistakes  in  accounts  are  reduced  to  the  minimum, 
until  their  habitual  accuracy  produces  its  effect  on  the  cus- 
tomer's mind.  He  is  not  inclined  to  claim  discrepancies  if 
he  is  always  proved  wrong,  and  he  is  much  more  likely  to 
pay  on  receipt  of  the  statement. 

It  is  worth  while  for  any  firm  to  analyze  its  accounts  in 
order  to  ascertain  what  per  cent  of  its  customers  pay  on 
receipt  of  the  statement.  If  this  percentage  is  not  decidedly 
large,  then  the  methods  of  sale  and  resale  must  be  subjected 
to  rigid  scrutiny  and  reformation,  while  a  very  earnest 
"clean-up"  campaign  (see  Chapter  VI)  should  be  instituted  to 
reform  the  bad  habits  of  customers. 

Some  credit  men  believe  that  the  invoice  is  sufficient 
notification  and  that  the  customer  should  pay  when  the  ac- 
count is  due  without  further  warning.  Others — ^and  these 
are  probably  the  majority — always  send  the  statement  to 
arrive  on  the  day  when  payment  is  due,  believing  that  the 


V    ' 


1 84 


NEW   COLLECTION   METHODS 


COLLECTION   PROCEDURE— EARLY   STAGES 


185 


ll 


results  more  than  pay  for  the  expense.  Another  excellent 
practice  adopted  by  many  houses  is  to  send  the  statement  to 
arrive  five  or  ten  days  before  the  account  is  due.  It  is  a 
good  plan,  in  order  to  avoid  annoyance,  to  print  or  stamp 
on  this  statement  in  large  type  the  words,  "This  accoimt 
will  not  be  due  for  ten  days.  Statement  is  submitted  for 
your  convenience."  The  same  words  can  be  printed  on  a 
sticker  and  pasted  to  the  statement. 

In  the  case  of  delinquents  with  whom  a  special  arrange- 
ment has  been  made,  it  is  often  wise  to  send  a  courteous 
letter  on  some  pretext  reminding  the  customer  of  his  coming 
obligation  and  urging  him  not  to  be  found  wanting.  On  the 
other  hand,  several  instalment  companies  handling  small 
payments  have  found  it  advisable  to  allow  the  customer  to 
do  his  own  reminding,  and  send  him  at  the  time  of  sale  a 
card  on  which  he  is  to  keep  his  own  record,  urging  him  to 
establish  a  definite  day  in  each  month  on  which  to  make 
payments. 

The  Stage  of  Reminder 

The  first  assumption,  if  payment  is  not  received  when 
due,  is  that  an  oversight  has  occurred  due  to  press  of  busi- 
ness or  other  reasons,  and  the  collector  tries  to  reinstate  the 
regular  order  of  things  by  a  gentle  reminder.  Depending 
upon  the  classification  of  customers  as  good  pay,  slow  pay, 
or  poor  pay,  or  on  some  other  classification,  he  may  send  out 
one  or  two  statements  at  intervals  followed  by  very  simple 
letters. 

Here  in  most  instances  is  the  all-important  crisis  in  the 
history  of  an  account.  If  the  customer  does  not  pay  on  the 
first  or  second  reminder,  he  is  in  grave  danger  of  lapsing 
still  further,  because  it  has  become  habitual  with  him  not  to 
pay  this  particular  account.  He  has  thought  of  it  several 
times  but  has  refrained  from  action.     How  is  the  collection 


man  to  prevent  this  state  of  mind?  The  answer  is,  by  using 
some  means  at  this  point  which  will  call  the  matter  more 
definitely  to  the  customer's  mind.  When  these  means  have 
been  decided  on,  one  of  the  worst  leaks  in  the  collection  pro- 
cedure will  have  been  plugged. 

The  step  adopted  must  not  give  offense  and  it  must  not 
be  used  with  the  wrong  people.  Consequently  it  must  be 
impersonal  and  courteous,  and  it  must  be  based  on  a  careful 
classification  of  customers,  for  those  who  are  seldom  slow 
do  not  need  the  same  treatment  as  those  who  frequently  run 
beyond  the  terms  laid  down,  while  those  who  are  poor  pay 
may  receive  even  more  urgent  communications. 

Stickers  and  Rubber  Stamps 

Special  stickers  attached  to  the  second  statement,  phrases 
imprinted  with  a  rubber  stamp,  enclosures  dealing  with  credit 
and  sent  with  the  second  statement  or  the  first  letter,  printed 
form  letters  accompanying  the  second  statement — ^these  are 
some  of  the  many  means  adopted  for  this  purpose.  Type- 
written reminders  can  be  substituted  for  printed  or  multi- 
graphed  reminders,  and  specific  appeals  to  pride  and  good- 
will can  be  employed  to  make  these  letters  sound  less 
mechanical.  A  paragraph  of  sales  material  in  the  letter  or 
some  other  method  of  "reselling  the  house"  is  an  admirable 
means  of  removing  unpleasant  implications  from  this  in- 
creased urgency  and  of  reminding  the  customer  that  he 
should  "pay  the  price"  for  his  valuable  credit  privilege. 

If  any  such  means  are  adopted  every  care  must  be  taken 
to  let  the  customer  see  that  they  are  general  and  not  applied 
to  him  alone,  and  the  house  must  be  ready  to  explain — ^in 
fact,  it  can  prepare  form  letters  for  this  purpose — that  these 
methods  are  adopted  merely  as  being  more  businesslike. 
"We  can  assure  you,"  this  letter  may  say,  "that  we  earnestly 
desire  to  retain  your  good-will  and  to  increase  the  volume  of 


m\ 


i86 


NEW  COLLECTION  METHODS 


our  dealings  as  well  as  the  efficiency  of  the  service  we  are 
able  to  render  you,  and  we  are  confident  that  you  will  bene- 
fit equally  with  ourselves  by  every  improvement  in  our  office 
practice." 

The  rubber  stamp  reminder  always  implies  extra  urgency, 
partly  by  reason  of  its  color.  But  a  monotonous  repetition  of 
"Please  remit"  presently  loses  force.  One  collection  man, 
realizing  this,  uses  from  time  to  time  six  different  stamps. 
One  of  them  shows  the  "man  in  the  moon"  with  an  alluring 
smile,  and  the  word  "Please"  written  above  it.  Another 
shows  within  an  oval  border  a  big  question  mark  "Have  you 
forgotten  us?"  Another  is  a  hand  with  a  finger  pointing 
and  the  words,  "Past  due."  Two  others  somewhat  longer 
read,  "Statement  of  June  purchases  and  balance  open  on  our 
ledger  for  purchases  prior  thereto.  Please  verify  and  report 
,any  error  on  this  statement" — "You  have  evidently  over- 
looked payment  of  last  month's  bill.  Please  mail  check 
which  we  are  sure  you  have  forgotten." 

One  advantage  of  printed  stickers  over  rubber  stamps  is 
their  comparative  novelty,  and  the  fact  that  their  language 
can  be  more  courteous  and  explanatory.  The  color  of  these 
stickers  can  be  made  subdued  or  violent  to  fit  their  mission. 

Special  Forms 

The  card  distributed  by  the  National  Association  of 
Credit  Men,  when  enclosed'  with  a  statement  or  letter,  brings 
earnestly  to  the  delinquent's  attention  the  consequence  of  his 
neglected  correspondence.    This  card  is  shown  on  page  187. 

Novel  forms  of  coin  cards,  etc.,  are  sometimes  used  as 
an  urgent  means  of  attracting  attention  and  as  an  easy  way 
of  getting  action.  The  Scott  Paper  Company,  for  example, 
uses  a  sheet  about  5  x  14  with  a  gummed  tab  at  each  end. 
This  is  folded  into  a  4j4  x  3  J4  size,  the  customer's  name  and 
address  typed  on  the  outside,  and  one  tab  fastened  down. 


COLLECTION   PROCEDURE— EARLY  STAGES 


Did  you  ever  stop  to  think 

How  seriously  mJifference,  an<)  neglect  o(  the  cor- 
respondence of  your  creditors,  relating  to  overdue 
accounts,  affects  your  crtdU  standing^ 

II  you  Cannot  remit  when  due,  don*t  let  the 
creditor  guess  the  reason.  He  is  Ukely  to  make  an 
unpleasant  guess.    Give  him  the  reason  straight, 

and  thus  encourage  that  6rank  relationship  between  business  m6n 

that  is  worth  dollars  to  each. 

PROMPTNESS   IN   CORRESPONDENCE   IS    ONE    OF 
THE  BEST  OF  CREDIT  AND  BUSINESS  BUILDERS 

NAUONAL  ASSOCIATION  OF  CREDIT  MEN 

rOIITY«NE  PARK  ROW  NEW  YORK  CltV 


L 


This   card  provides  a  courteous,   impersonal   reminder. 

to  self-interest  and  pride. 


It  resells  credit  and  appeals 


When  the  customer  receives  this  and^  opens  it  he  finds  a 
duplicate  invoice  folded  up  inside.  On  one-half  of  the  iheet 
itself  is  printed  a  letter  which  reads  as  follows: 

Dear  Sir: 

May  we  thank  you  for  your  recent  purchases  of  Scott  Tissue  J 
Products?     Particularly  the  ones  we  have  listed  in  the  statement 
form  opposite. 

Is  there  any  reason  why  this  account  has  remained  unpaid 
slightly  longer  than  the  contract  terms,  "30  ^ays  net  cash"  permit, 
gentlemen?  Instant  attention  will  be  accorded  your  explanation  in 
such  an  event. 

Your  message  can  be  written  in  the  blank  space  attached  or 

your  check  for  $ can  be  wrapped  in  this  form  which  refolds  _ 

for  your  convenience  into  an  addressed  return  envelope. 

A  response  in  either  form  is  respectfully  requested  before  the 
close  of  the  week  and  will  be  gratefully  received. 

Very  truly  yours,       , 

Credit  Departmei^t 

In  one  corner  of  the  space  reserved  for  the  letter  is  also 
shown  a  copy  of  the  statement  of  the  customer's  account  in 


It 


h^m 


1 88 


NEW  COLLECTION   METHODS 


three  columns,  one  for  the  date,  one  for  the  debit  item,  and 
one  for  the  credit  item,  with  the  balance  shown  at  the  bottom. 
The  other  half  of  the  sheet  is  headed  by  a  date  line,  the 
address  "The  Scott  Paper  Company,"  and  the  salutation, 
"Gentlemen:"  At  the  bottom  of  the  sheet  is  printed,  "Very 
truly  yours."  Even  where  the  customer  would  prefer  to  dis- 
regard the  sheet  sent  him  and  dictate  his  own  letter  the  de- 
vice is  likely  to  bring  quicker  action  than  if  the  blank  sheet 
were  omitted. 

Personal  Letters 

If  collections  are  to  be  effective  during  the  reminder  stage, 
the  letters  must  not  be  hackneyed  and  stereotyped.  Especially 
if  forms  are  used,  these  must  be  provided  in  considerable 
number  and  changed  frequently. 

The  use  of  individually  typed  letters  instead  of  multi- 
graphed  or  printed  forms  in  this  stage  of  collection  will 
bring,  according  to  the  writer's  belief,  the  best  results  in 
handling  the  ordinary  mercantile  trade  and  in  dealing  with 
customers  whose  future  trade  is  desired.  These  letters  can 
use  the  courteous  personal  language  of  dictated  correspon- 
dence, while  the  dictator  to  save  expense  can  indicate  them 
by  number,  and  have  them  either  individually  typed  from  a 
form-letter  book  in  the  possession  of  the  typist  or  run  off 
on  the  automatic  typewriter.  Short  reminders  are  not  ex- 
pensive to  type.  The  dates  of  previous  letters,  the  amounts 
involved,  or  a  personal  item  concerning  the  customer — even 
a  specially  dictated  paragraph — are  easily  inserted  in  the 
letter,  when  sent  to  the  typist  together  with  the. number  of 
the  form  letter  that  is  to  be  used. 

Some  Reminder  Letters 

The  following  letter  appeals  to  good-will  so  pleasantly 
that  it  can  be  used  when  an  account  is  only  slightly  overdue: 


% 


COLLECTION   PROCEDURE^EARLY   STAGES 


189 


Gentlemen : 

You  will  note  from  the  attached  statement  that  you  have  over- 
looked your  November  bill. 

We  rely  on  the  good-will  of  our  customers  to  repair  these  little 

oversights  on  being  reminded  of   them,  and  will  look   forward  to 

your  prompt  remittance. 

Yours  respectfully, 

Collection   Department 

These  two  letters  assume  that  the  customer  has  good-will 
for  the  creditor,  but  has  overlooked  making  payment: 

Dear  Sir: 

We  have  a  balance  against  you  on  our  books  for  the  sum  of 
$15.65.  Inasmuch  as  it  has  always  been  your  custom  to  remit 
promptly,  we  feel  that  the  matter  has  either  been  merely  overlooked 
or  that  there  is  some  error  in  our  books. 

With  the  supposition  that  such  an  error  may  possibly  exist 
we  are  sending  you  a  duplicate  invoice  for  your  assistance  in  check- 
ing up  the  matter. 

As  our  accounts  show  the  matter  as  unpaid,  please  let  us  know 
if  there  is  any  error,  and  we  will  be  glad  to  correct  it. 

Very  truly  yours. 


Dear  Sir: 

About  ten  days  ago  we  sent  you  a  statement  of  your  account 
amounting  to  $ 

Probably  this  statement  has  escaped  your  attention.  Now  that 
the  busy  season  is  coming  on,  that  would  be  quite  natural. 

We  feel  that  you  will  be  glad  to  have  your  attention  called  to 

the  matter  and  that  you  will  send  us  your  check  in  the  enclosed 

envelope.  ^     ..  „ 

Cordially  yours, 

Credit  &  Collection  Department 

This  short  letter  appeals  to  the  desire  to  avoid  annoyance. 

Dear  Sir: 

A  man  who  has  to  carry  many  details  in  his  mind  can't  possibly 
■  do  justice  to  all  of  them.    And  every  detail  he  attends  to  gives  him 
just  so  much  more  power  for  other  matters. 

Our  account  will  be  off  your  mind  if  you  send  a  check  today. 
Why  not  use  the  enclosed  envelope — nowf 

Very  truly  yours, 

Credit  &  Collection  Department 


^p 


.4 
bt  ; 


k 

n 


190 


NEW   COLLECTION   METHODS 


This  Story  tells  the  customer,  by  means  of  a  specific  in- 
stance, "We  know  how  these  things  happen  ourselves." 

Dear  Sir: 

One  of  the  firms  we  buy  office  supplies  from  phoned  us  the  other 
day  asking  for  a  check  on  their  account  Our  bookkeeper  couldn't 
find  that  we  owed  them  anything. 

Inquiry  about  the  office,  however,  revealed  the  fact  that  the 
office  manager  was  holding  the  bills  for  last  month  in  his  desk, 
forgetting  to  check  them  up  and  send  to  the  cashier  for  payment. 
He  got  "busy"  at  once. 

It  occurred  to  us  that  perhaps  your  account  with  us  had  be- 
come "shelved"  in  the  same  way,  and  that,  like  ourselves,  you  would 
appreciate  a  reminder. 

Very  truly  yours. 

Credit  &  Collection  Department 

The  following  two  letters  are  used  by  different  houses 
for  collecting  petty  accounts.  The  first  one  is  employed  to 
clean  up  the  books  at  the  beginning  of  the  year;  the  phrase 
"last  year"  surprises  the  debtor  and  makes  him  ashamed  of 
himself.  Each  letter  pleasantly  asks  for  an  order  with  the 
remittance. 

Gentlemen ; 

A  small  balance  of  $9.60,  for  goods  which  you  purchased  last 
year,  is  still  on  our  books.  Evidently  it  has  escaped  your  attention 
and  we  therefore  ask  that  you  send  a  check  in  settlement  to  balance 
the  account,  together  with  an  order.    Both  will  be  appreciated. 

Yours  respectfully. 


Credit  Manager 


Dear  Sir: 

The  credit  man  of  one  of  the  well-known  firms  here  remarked 
to  us  the  other  day  that  his  firm  never  sent  statements  as  they  con- 
sidered the  invoice  enough  notice  that  payment  was  due.  We  didn't 
agree  with  him  as  our  experience  has  been  that  the  largest  per- 
centage of  our  friends,  who  don't  discount,  pay  on  receipt  of  the 
statement 

And  that  leads  us  to  remark  that  we  have  had  no  returns  from 
the  statement  mailed  you  a  few  days  ago. 


COLLECTION  PROCEDURE— EARLY  STAGES 


191 


By  the  way,  the  holidays  will  soon  be  here  and  if  we  can  judge 
from  the  way  orders  are  coming  in,  the  forehanded  man  will  place 
his  order  now  for  his  holiday  goods. 

Is  your  order  in?  If  not,  take  inside  advice  and  when  you 
mail  us  your  check  for  the  account,  send  us  an  order  for  your 
Christmas  needs  with  it. 

Very  truly  yours. 

Some  Crisp  Collection  Letters 

The  following  nine,  short  letters  illustrate  how  variety  in 
reminders  may  be  secured  by  slight  changes  in  wording,  ap- 
pearance, paragraphing,  etc.  These  were  all  issued  by  the 
credit  department  of  a  certain  Massachusetts  manufacturer 
as  a  part  of  his  procedure  for  maintaining  his  terms,  without 
giving  offense  and  losing  good-will.  With  the  example  of 
this  exhibit  before  him,  no  collection  man  need  feel  that  he 
cannot  avoid  monotony  in  the  early  collection  letters  he 
writes;  while  with  the  additional  aid  of  material  presented 
elsewhere  in  this  book  he  can  secure  almost  endless  variety. 

Our  Invoice  of  June  14 
Dear  Sir: 

This  amounts  to  $9.47  as  shown  by  the  enclosed  statement. 
There  is  evidently  no  question  regarding  the  correctness  of  our 
charge  as  we  have  not  received  any  letter  from  you  to  that  effect. 
Payment  is  due  in  accordance  with  our  terms  of  net  60  days  subject 
to  which  your  order  was  placed. 

Please  favor  us  with  your  check  for  $9.47  at  an  early  date.  Your 
courtesy  will  be  appreciated. 

Yours  very  truly. 


Request  for  Information 
Dear  Sir: 

You  will  note  on  the  enclosed  statement  a  very  old  item  which 
amounts  to  $11.63.  This  is  to  cover  your  debit  memorandum  of 
January  25  which  we  were  unable  to  allow. 

If  you  feel  that  our  action,  perhaps,  was  not  entirely  reason- 
able, we  shall  be  very  glad  to  have  you  write  us  frankly  and  fully 
regarding  your  feeling  in  the  matter.    In  common  with  all  manu- 


192 


NEW   COLLECTION   METHODS 


facturers  it  is  our  earnest  desire  to  keep  our  accounts  cleaned  up 
to  date  as  much  as  possible  and  consequently  we  feel  that  some  dis- 
position should  be  made  of  this  small  item. 

Please  favor  us  with  the  courtesy  of  a  check  or  an  explanation 
at  an  early  date.  You  may  be  sure  your  courtesy  will  be  appre- 
ciated. 

Yours  very  truly. 


Our  Invoice  Dated  June  2/ 
Dear  Sir: 

Is  there  any  question  regarding  the  correctness  of  this  invoice, 
which  amounts  to  $76.65?  In  accordance  with  our  uniform  terms 
as  stated  on  the  enclosed  statement,  payment  should  have  been  re- 
ceived two  weeks  ago,  although  such  was  not  the  case. 

Doubtless  this  was  an  oversight  on  your  part.  If  you  find  that 
payment  is  in  order,  kindly  favor  us  with  your  check  for  $76.65  at 
your  earliest  convenience.  Your  courtesy,  you  may  be  sure  will 
be  appreciated.  ' 

Yours  very  truly, 


iisii 


Your  Orders  No.  63467  and  No.  64347 
Dear  Sir: 

These  are  covered  by  our  invoices  of  June  27  which  amount 
to  $3749  and  $10.71  as  shown  by  the  enclosed  statement.  In  accor- 
dance with  our  uniform  terms  of  net  60  days,  payment  of  these  in- 
voices is  overdue.  You  will  agree  with  us  that  our  terms  are  liberal 
and  masmuch  as  your  orders  were  placed  subject  to  them  they 
should  be  adhered  to  closely.  ' 

Please  favor  us  with  your  check  for  $48.20  at  your  earliest  con- 
venience. You  may  be  sure  the  courtesy  of  your  co-operation  will 
be  appreciated. 

Yours  very  truly. 


May  and  June  Invoices 
Dear  Sir: 

These  amount  to  $14.70  after  deducting  credit  of  June  16  as 
shown  by  the  enclosed  statement.  Payment  of  these  invoices  is  over- 
due in  accordance  with  our  uniform  payment  terms  of  net  60  days, 
which  we  feel  are  very  liberal.  ^ 


COLLECTION   PROCEDURE-EARLY   STAGES 


193 


Unless,  of  course,  you  have  some  question  regarding  the  cor- 
rectness of  our  charges,  an  early  payment  is  in  order.  Please  send 
us  your  check  for  $14.70  at  an  early  date.  Your  courtesy  will  be 
appreciated. 

Yours  very  truly. 


Our  Invoice  Dated  June  11 
Dear  Sir: 

On  Saturday,  August  11,  we  should  have  received  your  check 
for  $1.86  which  is  the  amount  of  our  invoice  as  shown  by  the  en- 
closed statement.  You  will  doubtless  agree  with  us  that  our  terms 
of  net  60  days  are  very  liberal.  We  feel  sure  that  the  delay  has 
been  due  to  oversight  rather  than  intent. 

Please  favor  us  with  your  check  for  this  small  amount  at  an 
early  date.    Your  courtesy  will  be  appreciated. 

Yours  very  truly. 


June  Invoices 
Dear  Sir: 

Is  there  any  question  regarding  the  correctness  of  invoices 
dated  June  25  and  27  which  amount  to  $7.14,  as  shown  by  the 
enclosed  statement?  Payment  of  these  invoices  is  overdue  on  a 
basis  of  net  60  days.  If  you  find  them  to  be  correct  we  believe  that 
you  will  agree  with  us  that  an  early  payment  is  in  order. 

Please  favor  us  with  your  check  for  $7.14  at  an  early  date. 
Your  courtesy  will  be  appreciated. 

Yours  very  truly. 


June  Invoices 
Dear  Sir: 

You  will  note  that  our  invoices  of  June  2  and  20  amount  to 
$59.60  as  shown  by  the  enclosed  statement.  In  accordance  with 
our  uniform  payment  terms  of  net  60  days,  payment  of  these  in- 
voices became  due  on  August  2  and  20  respectively.  You  will  doubt- 
^ss  agree  with  us  that  inasmuch  as  your  orders  £-12076-5867  and 
B-14628.7252  were  placed  with  us  subject  to  60-day  terms,  payment 
should  be  made  as  nearly  in  accordance  with  them  as  possible. 

Please  send  us  your  check  for  $59.60  at  an  early  date.  Your 
courtesy  will  be  appreciated. 

Yours  very  truly, 


I 


f 


EN 


194 


NEW   COLLECTION   METHODS 


Balance  of  Account 
Dear  Sir: 

This  amounts  to  $1.35  as  you  will  note  by  the  enclosed  state^ 
ment.  In  accordance  with  our  terms  of  net  60  days  which  are 
absolutely  uniform,  payment  of  this  balance  is  considerably  over- 

Doubtless  the  delay  has  been  caused  through  oversight  and  we 
trust  that  you  will  not  hesitate  to  extend  us  the  courtesy  of  an  earlv 
payment.  ^  ^ 

Yours  very  truly, 

Stronger  Reminders 

When  it  is  necessary  to  write  more  sharply,  this  manu- 
facturer writes  a  stronger  letter  omitting  some  of  the  courte- 
ous phrases  shown  in  the  preceding  correspondence  and  in- 
cludmg  a  phrase  suggestive  of  urgency.     (See  page  169.) 

Settlement  of  Account 
Dear  Sir: 

Apparently  you  have  overlooked  May  purchases  amounting  to 
$82.70  as  no  check  has  reached  us.  May  we  rely  upon  you  for 
payment  by  early  mail?  j     f      :f       i^i 

Yours  very  truly. 


_  Settlement  of  Account 

Dear  Sir: 

You  will  find  enclosed  an  itemized  statement  amounting  to 
$370.90  covenng  June  purchases.  These  items  are  considerably 
past  due  and  should  be  given  consideration.  May  we  rely  upon 
you  for  payment  not  later  than  Monday,  September  3? 

Yours  very  truly. 


-,        -.  Payment  of  Account 

Dear  Sir: 

Your   April   purchases    as    shown   by    the    attached    statement 
arreciatfd.  ^''^  ^^'*  '^"^'    ^  ^""'^^  settlement  will  be 

Yours  very  truly. 


COLLECTION    PROCEDURE— EARLY   STAGES 
Payment  of  Account 


19s 


Dear  Sir: 

We  wrote  you  on  August  10  and  requested  check  to  cover 
May  purchases  amounting  to  $659.55.  Up  to  the  present  no  reply 
has  reached  us. 

Please  let  us  know  why  payment  is  being  withheld. 

Yours  very  truly. 


Past-Due  Account 
Dear  Sir: 

Our  Credit  Department  wrote  you  on  August  10  and  requested 
check  to  cover  April  and  May  purchases  amounting  to  $17.29. 
Apparently  this  correspondence  has  been  overlooked  as  usually  such 
matters  are  given  your  prompt  consideration. 

Please  investigate  and  let  us  hear  from  you  promptly  as  your 
check  will  be  expected  not  later  than  Monday  of  next  week. 

Yours  very  truly. 


Past-Due  Account 
Dear  Sir: 

Our  Credit  Department  wrote  you  on  July  2  and  again  on 
July  15  relative  to  payment  of  April  purchases  amounting  to  $220.70. 
We  don't  understand  why  your  check  is  being  withheld  as,  according 
to  our  records,  there  is  no  question  in  connection  with  these  par- 
ticular transactions. 

We  feel  an  explanation  is  due  us  and  shall  look  for  your  reply 
on  Tuesday  of  next  week. 

Yours  very  truly. 


Payment  of  Account 
Dear  Sir: 

Is  there  some  question  concerning  the  correctness  of  our  ship- 
ments as  covered  by  May  21  and  23  invoices  amounting  in  total  to 
$145-67? 

We  have  written  you  several  times  concerning  these  charges 
and  feel  it  is  only  fair  that  you  either  send  us  your  check  by  return 
mail  or  advise  why  payment  is  being  withheld. 

Our  records  have  been  marked  ahead  to  September  5. 

Yours  very  truly. 


i  i 


it ' 


196 


NEW  COLLECTION  METHODS 


Petty  Accounts 

The  collection  of  petty  accounts  is  peculiarly  trouble- 
some, because  the  credit  manager  cannot  very  well  bring  his 
heavy  artillery  into  play  on  so  small  a  target,  while  on  the 
other  hand  he  must  exert  pressure  to  bring  the  sum  in  before 
the  expense  of  correspondence  becomes  too  great.  Appeals 
to  fair  play,  good- will,  and  shame,  are  often  effective.  Many 
of  the  letters  given  above  under  the  heading  "Stronger  Re- 
minders," will  serve  for  the  purpose,  as  well  as  the  follow- 
ing letters: 

Dear  Sir: 

A  statement  of  your  account  was  sent  you  a  few  days  ago, 

but  we  have  heard  nothing  from  you.    The  amount  due  us,  $ , 

is  small,  and  no  doubt  the  matter  has  been  overlooked.  We  would 
not  bring  this  up  again  so  soon  were  it  not  for  the  fact  that  we 
have  thousands  of  accounts  on  our  books,  and  delay  in  settlement 
causes  us  quite  a  little  expense,  and  a  great  deal  of  trouble. 

We  know  that  you  will  appreciate  this  fact  and  send  us  a 
remittance  by  return  mail,  using  the  enclosed  blue  envelope. 

Very  truly  yours. 


COLLECTION   PROCEDURE— EARLY  STAGES 


197 


small  balance  should  be  allowed  to  become  so  long  overdue,  al- 
though several  statements  have  been  sent  you  if  our  records  are 
correct. 

You  doubtless  realize  that  it  is  customary  practice  to  require 
cash  in  advance  when  bulbs  are  bought  in  Holland,  that  ocean 
freight,  insurance,  and  duties  have  all  been  paid  in  addition  months 
ago.  Put  yourself  in  our  place — remember  that  we  figured  prices 
lower  last  season  and  delivered  finer  quality  bulbs  than  are  gener- 
ally procurable;  is  it  not  fair  to  urge  that  a  remittance  be  sent  by 
return  mail? 

Very  truly  yours. 


Dear  Sir: 

Our  ledgers  show  there  is  a  little  amount  due  us  of  65  cents,  as 
shown  by  statement  attached. 

Possibly  this  little  amount  has  been  paid,  but  our  ledgers  do 
not  show  it,  so  won't  you  please  be  kind  enough  to  investigate 
and  favor  us  with  remittance  if  not  paid? 

If,  however,  remittance  has  been  sent  us,  please  state  date  and 
in  what  form,  then  we  will  not  bother  you  any  further  regarding 
payment. 

Thank  you  kindly  for  assisting  us  in  the  adjustment  of  this 
little  matter. 

Yours  truly. 


I? 


Dear  Sir: 

Can  you  tell  us  of  any  reason  why  your  account  as  shown  below 
should  not  be  paid  without  further  delay? 

We  cannot  feel  that  it  is  other  than  an  oversight  that  this 


COLLECTION   PROCEDURE— DISCUSSION 


199 


CHAPTER    XIX 

COLLECTION    PROCEDURE— DISCUSSION 

Constructive  Work  of  Collection 

After  the  account  has  gone  through  the  reminder  stage, 
it  will  probably  go  into  the  hands  of  a  higher  official,  usually 
the  credit  manager.  Here  is  the  real  opportunity  for  the 
constructive  work  of  collection,  which  has  been  considered 
of  such  importance  that  the  principles  which  govern  its 
operation  have  been  laid  down  in  Chapters  IV  and  V  on 
resale ;  while  the  methods  used  by  the  credit  manager  to  carry 
over  into  the  period  of  delinquency  the  constructive  work  of 
credit  education,  together  with  many  illustrative  letters,  are 
given  in  Chapters  VII  to  XIII,  inclusive.  The  work  of  the 
credit  manager  who  visits  the  debtor  either  in  person  or  by 
deputy,  or  who  through  letters  and  printed  matter  strives  to 
increase  his  efficiency  and  build  him  into  a  better  credit  risk 
and  an  increased  purchaser  of  his  goods,  is  made  the  subject 
of  Chapters  XXVII,  XXVIII  on  constructive  credits. 

A  brief  treatment  only  of  the  credit  man's  work  in 
collections  is  given  at  this  point  for  the  sake  of  continuity. 

"What  Is  the  Trouble?" 

If  the  creditor's  reminders  have  been  ineffectual  in 
getting  the  debtor  to  pay  through  force  of  habit,  the  creditor 
may  next  inquire,  "What's  the  trouble?"  In  the  case  of 
petty  accounts  or  previous  delinquents  or  other  cases  calling 
for  urgency,  he  may  decide  to  resort  at  once  to  drafts  or 
other  outside  means. 

But  it  is  desirable  that  if  he  advances  at  once  to  the 

198 


stage  of  urgency,  he  should  nevertheless  explain  his  severity. 
Without  this  precaution  many  debtors  will  feel  that  they  are 
being  treated  unfairly.  In  every  walk  of  life  and  every 
kind  of  human  relation,  after  a  man  has  been  reminded  of 
his  obligation,  it  is  only  natural  to  try  to  come  to  an  under- 
standing. Many  customers  may  respond  to  severity  used 
without  explanation,  just  as  many  horses  have  patiently  be- 
come used  to  bad  driving  and  jerking  on  the  lines;  never- 
theless, that  is  not  the  right  way  to  drive  a  horse. 

If  a  draft  is  to  be  used,  the  customer  can  be  warned  and 
given  an  opportunity  to  reply.  The  letter  can  contain  a 
sentence  like  the  following,  "We  regret  to  take  this  step, 
feeling  that  you  would  prefer  us  to  adopt  other  means,  but 
the  necessity  of  maintaining  our  terms  as  the  foundation  of 
good  business  requires  us  to  adopt  measures  which  we  believe 
your  own  good  business  judgment  will  approve."  The 
creditor  may  use  other  appeals  to  explain  this  step;  but  he 
must  never  apologize  for  it. 

We  will  suppose,  however,  that  the  account  is  fairly  large 
or  the  customer  in  fair  standing,  or  that  the  finances  of  the 
creditor  permit  the  debtor  an  opportunity  for  explanation.  A 
great  number  of  houses  the  country  over  have  discovered 
that  urgency  at  this  stage  does  not  pay,  that  their  drafts  are 
returned,  while  the  heavy  turnover  of  trade  year  by  year 
shows  that  some  policy  of  the  house  is  driving  away  estab- 
lished customers — ^possibly  the  collection  policy.  In  the 
words  of  the  general  manager  of  a  well-known  wholesaler, 
"My  assistants  don't  seem  to  realize,  when  they  tell  a  mer- 
chant that  they  must  have  his  check  for  $5,000  on  a  certain 
date,  that  he  couldn't  get  that  amount  to  save  his  life — not 
unless  he  went  out  and  robbed  somebody."  In  order  to 
secure  action,  one  must  either  make  possible  the  action  asked, 
or  else  ask  for  an  action  that  is  possible.  Probably  the 
account  at  this  stage  has  been  turned  over  to  the  credit 


200 


NEW   COLLECTION  METHODS 


COLLECTION   PROCEDURE— DISCUSSION 


20 1 


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manager  or  some  higher  oflficial  whose  duty  it  is  to  exercise 
judgment  in  such  instances.  By  using  one  of  a  hundred 
means  he  can  work  for  a  reply,  asking  for  an  explanation 
accompanied  by  check,  or  an  explanation  letting  him  know 
precisely  what  to  expect.  Here  is  the  opportunity  for  real 
skill  in  collection. 

Sizing  Up  the  Customer 

With  a  record  of  the  account  before  him,  giving  a  history 
of  the  customer's  present  and  past  transactions — with  a 
folder  of  credit  information  gathered  from  the  salesman, 
from  the  customer  direct,  from  rating  agencies,  and  from 
many  other  possible  sources,  the  credit  manager  proceeds  to 
"size  up"  the  customer,  and  to  take  the  step  adapted,  in  his 
judgment,  to  produce  the  money  without  forfeiting  good- 
will or  forcing  the  customer  into  bankruptcy. 

He  may  be  a  jobber  in  St.  Louis  writing  to  a  customer 
in  Kansas.  At  his  elbow  are  the  latest  reports  showing  con- 
ditions of  crop,  market,  and  weather,  besides  a  digest  and 
analysis  of  the  comprehensive  information  collected  by  his 
salesmen,  East,  West,  North,  and  South.  Before  his  mind's 
eye  stretch  the  wide,  treeless  plains  of  Kansas,  and  he  knows 
this  district  is  suffering  from  a  drought.  What  is  the  use 
of  crowding  that  merchant  when  the  chances  are  a  thousand 
to  one  that  the  farmers  have  no  money  and  the  merchants 
cannot  collect?  A  friendly  letter  hinting  at  a  possible 
arrangement,  or  offering  outright  a  scheme  of  part  payment, 
will  be  the  method  he  adopts.  "Mr.  Homer  is  just  in  from 
your  territory,"  dictates  the  manager,  "and  on  the  basis  of 
his  report,  we  do  not  doubt  that  you  are  suffering  from  the 
prevailing  crop  and  weather  conditions  in  your  territory. 
Nevertheless  let  me  say  as  one  business  man  speaking  to 
another  that  we  cannot  be  expected  to  make  arrangements 
that  will  reduce  your  indebtedness  unless  we  know  directly 


from  you  what  the  situation  is.  Please  paste  the  enclosed 
sticker  at  the  head  of  your  letter  and  then  it  will  come 
directly  to  my  desk." 

"Raining  in  Southern  Illinois'* 

"One  of  the  young  men  in  my  office  hasn't  enough 
imagination  or  sympathy.  He  writes  down  a  severe  letter 
to  a  merchant  who  hasn't  answered  his  reminders  and  he 
gets  back  an  indignant  reply  saying  that  it  has  been  raining 
in  Southern  Illinois,  the  roads  are  flooded,  business  is  bad, 
people  can't  come  into  town,  and  he  simply  hasn't  the  money 
to  pay.  The  trouble  with  my  assistant,"  concluded  the 
manager  who  made  this  observation,  "is  that  he  ought  to 
know  that  it  is  raining  in  Southern  Illinois." 

Stud3dng  the  Ledger 

"I  spread  out  the  ledger  before  me  and  note  the  cus- 
tomer's line  of  business,"  said  another  credit  manager.  "I  am 
a  great  believer,  too,  in  really  personal  information;  by  that  I 
mean  notes  from  the  salesman  on  the  customer's  build,  the 
color  of  his  hair,  the  way  he  shakes  hands,  and  the  looks  of 
his  store  window.  Wherever  possible,  I  have  a  photograph 
that  shows  me  these  things.  Many  of  them  are  clipped  from 
our  house  organs  and  have  served  a  double  purpose  in 
awakening  the  customer's  pride,  helping  to  increase  good- 
will, and  giving  me  as  credit  manager  the  chance  to  talk  to 
him  in  a  friendly,  straight-from-the-shoulder  fashion. 

"Purchasers  in  a  certain  line  of  business,"  said  this 
manager,  "are  always  slow  because  their  accounts  are  in 
bad  shape,"  and  he  makes  earnest  constructive  suggestions 
that  show  them  where  their  advantage  lies.  Such  corre- 
spondence, continued  over  a  number  of  years,  has  had  won- 
derful effect  in  both  holding  his  customers  and  increasing  their 
prosperity. 


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202 


NEW   COLLECTION   METHODS 


A  Basis  of  Personal  Acquaintance 

"Some  use  the  commercial  agencies  exclusively,  but  we 
go  more  by  business  references  and  the  actual  signed  state- 
ment of  the  customer  himself,"  said  the  credit  manager  of 
a  corporation  doing  a  $30,000,000  business  each  year. 
"Unless  we  know  the  applicant  personally,  we  depend  chiefly 
on  his  own  statement.  Up  to  July  of  this  year  I  have  used 
only  80  reports. 

"From  the  form  sent  in,  I  find  out  with  whom  the  mer- 
chant does  business  and  how  he  stands  in  the  community. 
Is  he  doing  business  not  warranted  by  his  capital?  Has  he 
been  'slow'?  Has  he  asked  for  extension  in  the  past,  or 
given  notes?  Here  is  the  record,  for  instance,  of  a  man  who 
will  not  answer  a  letter.  I  shall  send  him  reminders,  using 
various  appeals,  until  I  strike  the  one  that  gets  the  money. 
He  never  writes,  but  is  gradually  getting  to  be  less  slow  in 
his  payments.  This  memorandum  tells  me  of  another  man 
who  allowed  his  note  to  be  protested.  Nevertheless  I  knew 
he  was  good  for  the  amount  and  I  wrote  him  a  kind  letter 
that  made  him  our  friend  for  life  besides  getting  us  the 
money. 

"Our  customers  are  recorded  as  60-day  men  or  90-day 
men;  that  is,  they  pay  in  that  time.  I  gage  my  letters  to 
them  accordingly.  Is  it  a  first  offense?  What  is  the  mer- 
chant's line  of  business?  Perhaps  he  is  stocking  up  with 
furniture  for  the  fall.  He  is  consequently  under  heavy  ex- 
pense, and  I  offer  him  part  payment.  If  it  is  a  habitual 
offense  and  a  large  account,  I  send  him  sharp  letters.  But 
on  the  average  account,  I  write  an  educational  letter  showing 
that  our  cost  and  consequently  our  prices  are  based  on 
prompt  payment."  It  may  be  said  in  passing  that  this  line 
of  business  owing  to  the  rapid  spoilage  of  goods  necessitates 
very  strict  maintenance  of  its  60-day  terms;  nevertheless, 
resale  policies  are  the  foundation  of  its  methods. 


COLLECTION   PROCEDURE-DISCUSSION 


203 


The  "Branch  House"  Credit  Manager 

"When  I  was  handling  credit  in  the  old  ABC  com- 
pany," said  the  credit  manager  of  one  of  America's  largest 
corporations,  "a  personal  knowledge  of  the  customers  was 
one  of  my  greatest  assets.  I  took  pains  in  my  letters  to 
show  personal  knowledge  and  information  about  conditions 
in  that  territory  which  my  local  acquaintance  gave  me. 
Later,  when  that  company  was  taken  into  this  corporation, 
I  passed  on  the  same  policies  to  my  branch  managers.  That's 
what  a  branch  house  is  for — to  get  into  such  close  touch  with 
the  customers  as  to  know  the  conditions  of  climate  or 
business  in  their  locality.  I  give  the  branch  managers  a 
pretty  free  hand  because  I  want  them  to  develop  initiative 
and  to  hand  me  back  their  ideas.  They  get  credit  for  them, 
too;  if  the  office  boy  has  ideas  I  haven't,  I  am  glad  of  it. 
It  is  true,  I  let  them  have  copies  of  my  typical  letters  and 
my  procedure,  and  they  in  turn  send  me  back  copies  of 
their  reports  and  their  letters;  but  it  is  their  initiative  and 
their  knowledge  of  local  conditions  on  which  we  must  place 
reliance.  I  believe  in  the  credit  department  showing  a  warm 
friendly  spirit  to  customers  whether  in  person  or  by  letter. 

"One  of  our  dealers  was  a  queer,  timid,  old  fellow  and 
as  deaf  as  a  post.  His  account  was  always  behind  a  couple 
of  hundreds,  but  he  liked  our  office  manager  and  had  con- 
fidence in  him,  so  that  when  he  came  down  to  New  York, 
he  would  hunt  him  up  and  take  him  out  to  lunch  and  pay 
his  account.  One  day  a  new  man  in  our  office  wrote  him 
a  sharp  letter;  he  wrote  back  to  me  saying  that  if  this  were 
the  way  we  were  going  to  treat  him  he  would  stop  doing 
business  with  us.  This  was  a  very  extreme  case,  but  never- 
theless every  customer  is  different  from  every  other  cus- 
tomer, and  personal  acquaintance  and  attention  should  be 
used  in  handling  their  accounts."  Other  "branch  manager" 
letters  will  be  found  in  Chapter  XXV. 


If 


.   A 


204 


NEW   COLLECTION  METHODS 


Friendly,  Earnest  Discussion 

In  addition  to  the  letters  shown  in  other  chapters  which 
may  be  used  at  this  stage  of  the  procedure,  the  following 
letters  illustrate  how  the  credit  or  collection  manager  may 
enter  into  a  friendly,  earnest  discussion  with  his  delinquent 
customer,  getting  attention  by  the  length  of  his  letter,  as 
well  as  by  its  serious  style. 

The  first  letter  makes  an  appeal  to  fair  play  by  telling  a 
story  of  the  treatment  which  any  right-minded  man  would 
condemn  and  then  turning  on  the  reader  with  the  exclama- 
tion, "You  are  the  man!" 

Dear  Sir: 

What  would  you  do  if  you  were  in  my  place? 

Let  me  tell  you  a  story  without  mentioning  any  names  and 
then  please  tell  me  how  you  would  act  were  you  in  my  position 
as  collection  manager  for  The Pen  Company. 

A  man  bought  pens  of  us  on  credit.  We  treated  him  with 
every  courtesy,  giving  him  as  good  as  we  had;  later  on  showing 
him  every  leniency  when  the  bill  became  past  due.  But  he  paid 
no  attention  to  our  requests  for  payment  made  in  accordance  with 
the  terms  agreed  upon,  and  continued  requests  in  the  way  of  fair 
and  friendly  letters  brought  not  even  a  reply. 

And  now,  if  a  man  treated  You  in  this  manner,  what  would 
you  do? 

Exactly — ^just  as  you  would  do,  so  must  we  do,  for  You  are  the 
man ! 

If  you  believe  in  a  square  deal,  show  it  by  paying  this  account 
now  in  a  straightforward  man-fashion. 

By  so  doing,  you  will  save  us  both  unpleasant  legal  and  other 
processes. 

The  amount  of  your  past-due  account  is  $99.51. 
{^  We  must  have  your  check  before  the  19th. 
*  Earnestly  yours, 


Collection  Manager 

A  Suggestive  Letter 

A  certain  manufacturer  had  a  distant  customer  concern- 
ing whom  his  information  was  slight.    After  his  usual  series 


COLLECTION   PROCEDURE— DISCUSSION 


205 


of  statements  and  reminders  had  been  issued  without  getting 
a  reply,  he  sent  the  following  letter,  which  gets  attention  by 
its  unusual  **lay-out,*'  while  the  sentence  so  strikingly  empha- 
sized contains  an  unpleasant  suggestion  for  the  debtor. 

Dear  Sir: 

You  are  one  of  our  new  customers  and  this  is  our  first  credit 
relation  with  you.  Our  three  statements,  and  our  letters  of  January 
I  and  10,  have  as  yet  been  unanswered.  This  would  indicate  that 
something  is  wrong. 

Did  we  not  come  to  a  satisfactory  credit  understanding? 

Have  we  made  some  mistake  on  our  charge? 

How  do  you  wish  us  to  handle  your  account? 

By  all  means  be  frank  in  telling  us  if  any  mistake  has  occurred, 
for  you  will  find  us  more  than  willing  to  correct  it. 

Yours  very  truly, 

Three  Letters  in  Series 

A  silk  manufacturer  had  obtained  a  wide  distribution 
through  an  improved  spool  cabinet  which  appealed  to  re- 
tailers, but  he  often  found  himself  lacking  in  credit 
acquaintance  with  the  customer  whose  trade  had  thus  been 
secured.  Accordingly  he  adopted  a  policy  of  following  his 
first  statement  with  a  series  of  three  letters  which  were 
unusually  successful  in  bringing  answers  promptly. 

Dear  Sir: 

You  have  no  doubt  overlooked  the  statement  we  sent  you  on 
January  10,  for  $25.50,  the  price  of  our  cabinet  with  the  standard 
assortment  of  spool  silk. 

Will  you  not  make  a  very  special  eflFort  to  send  us  a  check  as 
soon  as  you  can?  We  always  wish  to  be  as  lenient  with  our  cus- 
tomers as  we  can,  but  as  a  business  man  yourself  you  can  readily 
perceive  the  necessity  in  our  line  of  business,  of  observing  certain 
definite  rules  in  the  matter  of  payment.  We  are  able  to  make  a  free 
trial  offer  and  to  extend  valuable  services  to  our  customers,  only  as 
long  as  our  present  financial  status  continues.  If  we  were  not  to  in- 
sist upon  the  strict  observance  of  this  policy,  we  could  not  do 
business  upon  our  present  basis  of  high  service  to  our  customers. 


t 


206 


NEW   COLLECTION   METHODS 


We  are  sure  that  this  policy  benefits  our  customers,  not  only 
m  the  matter  of  improved  service,  but  as  the  result  of  a  careful 
and  systematic  method  of  handling  accounts.  For  instance,  you 
know  that  you,  yourself,  would  rather  trade  where  you  knew  that 
your  accounts  had  been  regularly  and  systematically  paid;  you 
would  have  got  the  "habit"  and  you  would  find  yourself  relieved 
of  the  bother  and  worry  of  getting  off  payments  at  irregular  in- 
tervals. We  have  at  heart  the  interests  of  our  customers  and  this 
fact  compels  us  to  adhere  to  a  systematic  method  of  handling  ac- 
counts. 

We  are  very  pleased  to  learn  that  your  cabinet  has  proved 
satisfactory  and  trust  that  we  will  soon  be  able  to  supply  more 
spool  silk  for  it 

Very  truly  yours, 


Dear  Sir; 

Unfortunately  we  have  received  no  reply  from  you  to  our 
letter  of  January  24,  requesting  the  remittance  of  an  overdue  item 
of  $25.50. 

We  would  appreciate  it  very  much  if  you  would  write  us  out 
a  check  and  send  it  in  the  next  mail.  No  doubt  your  clerks  have 
overlooked  this  matter,  but  as  our  policy  of  payment  was  mailed 
along  with  the  bill  of  sale,  and  as  we  have  since  explained  the  ad- 
vantages of  a  systematic  method  of  handling  accounts,  we  are  sure 
that  you  will  be  glad  to  have  us  bring  the  matter  to  your  attention 
again. 

If  you  are  encountering  any  difficulties  that  make  it  impossible 
for  you  to  remit  promptly  at  this  time,  we  would  urge  you  to  ex- 
plain the  exact  situation  to  us.  Come  to  a  full  and  open  under- 
standing with  us.  We  assure  you  that  our  interests  and  the  in- 
terests of  our  customers  are  the  same;  our  attitude  is  one  of 
service. 

Will  you  not  show  your  good-will  by  mailing  that  check? 

Very  truly  yours, 


Dear  Sir: 

As  we  have  not  heard  from  you  in  response  to  our  letters  of 
January  24  and  January  31,  asking  for  a  remittance  of  your  ac- 
count of  $25.50,  we  must  now  ask  you  to  send  us  a  check  before 
February  20. 

We  have  endeavored  to  explain  to  you  the  necessity  of  a  sys- 
tematic policy  of  payment  on  the  part  of  our  customers.    We  rc- 


COLLECTION   PROCEDURE-DISCUSSION 


207 


gret  that  we  can  only  infer  from  your  silence  that  you  do  not  care 
to  acquiesce  in  our  requests — reasonable  as  we  have  shown  them 
to  be.     We  shall  now  be  compelled  to  draw  on  you  through  the  First 

National  Bank  of ,  in  case  your  check  does  not  arrive  on 

February  20. 

We  hope  that  you  will  not  make  this  step  an  actual  necessity. 

Very  truly  yours. 

Two  Lumber  Letters 

A  lumber  manufacturer  found  that  his  customers,  pro- 
prietors of  retail  lumber  yards,  were  good  fellows  person- 
ally but  poor  business  men.  As  a  part  of  his  campaign  to 
educate  them  in  better  dealings  and  consequently  to  improve 
profits  for  themselves,  he  prepared  the  two  following  letters 
which  base  their  appeal  on  mutual  pride  in  the  lumber 
business. 

Gentlemen : 

We  are  sorry  to  find  that  your  bill  of  $810  due  March  i,  1918, 
is  still  unpaid.  Since  we  have  received  no  comment  on  the  state- 
ments enclosed  in  our  letter  of  April  2,  we  assume  that  the  amount 
is  correct,  and  we  are  therefore  unable  to  account  for  this  delay 
of  another  month. 

Situated  as  we  are,  a  thousand  miles  apart,  it  is  hard  for  each 
of  us  to  realize  that  the  other  is  a  company  of  hard-working,  prac- 
tical business  men,  both  interested  in  pushing  the  lumber  trade  by 
conducting  our  business  on  a  prompt  and  efficient  basis. 

If  we  could  get  this  idea,  if  we  could  establish  the  personal 
element  in  our  relations,  it  would  mean  much  to  both  of  us. 

Let  us  keep  this  thought  in  mind  and  really  feel  that  our  obli- 
gations to  our  fellow  lumbermen  a  thousand  miles  away  are  just 
as  important  as  those  which  we  owe  in  our  own  town. 

Take  a  few  minutes  and  write  to  us.  It  will  help  us  to  get 
better  acquainted,  and  remember,  it  all  helps  the  lumber  business. 

We  enclose  another  statement.  Will  you  please  check  it  with 
the  invoice  and  forward  the  amount  promptly  ? 

Very  truly  yours, 


Gentlemen : 

Two  weeks  ago  we  wrote  you  a  letter  enclosing  a  statement 
Of  your  account  amounting  to  $810  due  March  i,  1918,  three  months 


208 


NEW    COLLECTION   METHODS 


ago.     We  asked  you  to  write  us  a  letter.    Wc  wanted  to  get  ac- 
quainted with  you. 

The  letter  didn't  come,  neither  did  the  $8io.  Frankly,  we  were 
disappointed.  We  thought  that  we  deserved  both.  We  sent  a  fine 
carload  of  lumber.  We  sent  our  statement  promptly,  and  we  wrote 
a  letter  trying  to  find  out  what  the  trouble  was  when  the  money 
didn't  come. 

All  of  this  brought  no  results.  We  like  to  deal  with  lumber 
retailers  because  they  treat  us  as  fellow  lumbermen. 

You,  as  the  leading  retailer  of  Neilsville,  are  in  a  position 
to  boost  the  lumber  business  or  hold  it  down  by  your  business 
methods. 

Set  them  at  a  level  that  you  will  be  proud  of  as  a  lumberman. 

There  is  no  uncertainty  or  question  about  this  obligation  of 
$8io.  It  is  a  single  invoice  which  we  are  sure  you  found  correct, 
and  we  therefore  expect  that  you  will  write  to  us  promptly  enclos- 
ing the  amount. 

Very  truly  yours. 

An  Unusual  LrCtter 

The  following  letter  by  reason  of  its  unusual  style  and 
its  appeal  to  pride  and  fair  play  produced  good  results  when 
employed  by  a  certain  manufacturer  to  bring  in  the  money 
from  a  list  of  habitually  careless  retailers. 

Dear  Sir: 

We  appreciate  the  fact  that  you  stand  in  a  rather  enviable  posi- 
tion. Your  credit  is  good,  and  our  protests  against  your  neglecting 
to  pay  our  small  bill  of  $25.60  after  receiving  several  reminders 
cannot,  you  believe,  affect  your  business  standing.  However  that 
may  be,  it  is  embarrassing  and  troublesome  for  us  to  have  to  remind 
you  of  a  bill  that  you  are  really  able  to  meet  at  any  time. 

In  your  own  business  it  doesn't  exactly  pay  to  go  after  the 
man  who  owes  you  a  few  dollars.     Neither  does  it  pay  us  to  do  so. 

You  know  that  your  bills  against  your  customers  represent 
transactions  entered  into  in  good  faith.  You  are  right  in  your  be- 
lief that  these  men  are  in  duty  bound  to  pay  you  or  at  least  to  offer 
an  explanation.    Wherein  is  our  case  different  from  your  own? 

It  is  our  object  to  take  care  of  your  future  orders  as  it  is 
our  object  to  establish  better  credit  relations  with  you. 

Our  wish  is  that  our  business  interests  may  bring  us  together 
in  the  near  future. 

Yours  truly, 


t-« 


CHAPTER    XX 

COLLECTION  PROCEDURE— URGENT 

Various  Methods  of  Credit  Manager 

Enough  has  been  said  in  the  preceding  sections  to  show 
the  general  attitude  of  the  credit  manager  or  higher  official 
who  has  in  charge  correspondence  with  a  customer  who  has 
failed  to  reply  to  reminders.  If  the  customer  fails  to  take 
the  opportunity  given  him  for  sending  in  a  reply,  or  if  for 
other  reasons  more  urgent  means  must  be  adopted,  the 
manager  still  has  several  options.  He  will  probably  try  the 
effect  of  a  draft;  he  may  give  warning  that  an  attorney  or 
some  other  outside  agency  may  be  employed;  he  may  en- 
deavor to  secure  through  a  salesman  or  a  traveling  credit 
representative,  some  personal  information  about  the  cus- 
tomer's affairs  that  will  lead  to  an  adjustment;  or  he  may 
try  various  combinations  of  appeals  to  advantage  and  obliga- 
tion with  strong  emphasis  on  the  resale  point  of  view.  When 
once  a  reply  has  been  received,  he  can  proceed  on  the  basis 
of  the  information  it  contains. 

Making  Drafts  Effective 

While  a  draft  is  a  good  "attention-getter,"  it  is  often 
handled  so  carelessly  as  practically  to  destroy  its  efficiency. 
"I  have  seen  drafts  so  carelessly  written,"  says  J.  H.  Tregoe, 
secretary  of  the  National  Association  of  Credit  Men,  "so 
badly  printed,  and  even  dirty  and  crumpled,  that  the  debtor 
could  hardly  be  blamed  for  disregarding  them."  In  some 
localities  it  is  said  that  drafts  have  become  so  common  as 
almost  never  to  receive  attention.    In  Canada,  it  is  common 

209 


2IO 


NEW   COLLECTION   METHODS 


COLLECTION    PROCEDURE— URGENT 


211 


I 

m 


practice  to  follow  one  draft  by  another,  almost  as  in  the 
United  States  one  collection  letter  is  followed  by  another. 
To  make  the  draft  effective,  then,  it  should  be  accom- 
panied or  preceded  by  a  letter  to  heighten  its  effect  in  the 
customer's  mind.     Some  business  men  are  greatly  offended 
by  a  draft;  others  never  pay  except  when  drawn  on;  and 
still  others  give  trumped-up  excuses   for  dishonoring  them. 
"We  are  very  reluctant  to  take  such  measures  or  even 
I  to  mention  them,"  says  one  credit  manager.     "We  certainly 
do  not  wish  to  take  such  a  step  without  giving  you  an  oppor- 
/    tunity  to   respond,   and  accordingly  we   shall  withhold  the 
draft   until   April    lo,   at   which   time   it   will   be   sent   you 

through "      Another  company  uses  a  powerful  letter 

urging  the  delinquent  to  "pay  this  draft,"  reasoning  that, 
as  the  draft  in  itself  secures  attention  and  does  not 
arouse  much  fear,  the  letter  should  increase  the  effect  upon 
the  customer's  attention.  At  the  same  time  the  letter  con- 
tains an  appeal  to  the  customer's  fair  play  and  pride  in  the 
suggestion  that  by  honoring  the  draft  he  will  show  his 
preference  for  friendly  dealings. 

Another  method  is  to  explain  courteously  why  the  draft 
is  issued  and  what  are  the  credit  requirements  which  demand 
settlement  within  a  certain  time,  with  an  expression  of  re- 
gret, because  "we  are  well  aware  that  business  men  in  many 
instances  do  not  like  drafts."  Such  a  letter  should  be  used, 
say  ten  days  in  advance,  as  an  evidence  of  fairness. 

The  following  letter  was  used  by  a  manufacturer  with 
slow-  and  poor-pay  customers,  or  those  who  habitually  paid 
only  when  drawn  upon. 

Gentlemen : 

Evidently  our  letter  of  June  14,  wherein  we  requested  a  re- 
mittance covering  a  past-due  account  has  been  overlooked.  It  hap- 
pens sometimes  with  the  best  of  us. 

Under  the  circumstances  will  you  make  settlement  direct  or 
honor  a  draft  six  days  hence  through  the  First  National  Bank? 


Unless  your  check  is  received  we  take  it  for  granted  that  we 
have  your  permission  to  draw  and  that  draft  will  be  accepted. 

Yours  respectfully, 
Collection  Department. 

An  Objection  to  Drafts 

A  certain  large  jobber  uses  drafts  less  than  formerly, 
having  found  errors  in  many  of  them  because  of  clerical 
mistakes.  Sometimes  these  mistakes  originated  in  the  house, 
but  more  frequently  through  the  customer's  fault.  For 
example,  a  small  storekeeper  who  was  in  partnership  with 
another  man,  would  have  the  habit  of  signing  his  own  name 
to  checks.  The  draft  would  accordingly  be  made  against 
him,  though  it  should  have  been  made  against  the  partner- 
ship. Or  a  man  doing  business  in  one  town  might  send  in 
his  check  while  he  was  in  another  town,  with  nothing  to 
indicate  his  real  location.  This  then  would  be  entered  to 
the  credit  of  his  name  but  in  another  location,  possibly  in 
the  belief  that  it  was  a  cash  payment  from  a  new  account. 
Mistakes  of  this  sort  would  be  less  likely  to  happen  if  this 
house  did  not  do  business  with  such  an  enormous  number 
of  customers,  the  great  majority  of  whom  are  small  store- 
keepers, some  of  whom  are  unacquainted  with  business 
customs. 

When  a  Draft  Is  Refused 

If  a  draft  is  refused  and  a  reason  assigned,  the  creditor 
can  write  letters  which  force  the  debtor  either  to  pay,  or  to 
take  the  position  of  deliberately  withholding  payment.  In 
the  latter  case  another  draft  may  be  sent  with  notice  that 
following  refusal  the  account  will  go  to  attorney;  or  warn- 
ing of  the  attorney  may  be  given  without  recourse  to  an- 
other draft. 

The  following  letters  represent  the  correspondence  which 
may  follow  the  refusal  of  draft. 


212 


NEW   COLLECTION  METHODS 


COLLECTION   PROCEDURE— URGENT 


213 


i! 


Gentlemen : 

A  very  small  sum  is  owing  to  us  for  goods  you  purchased  last 
year,  amounting  to  $9.60. 

We  have  written  you  several  times  suggesting  that  you  make 
payment  and  recently  sent  you  a  draft,  after  giving  you  ten  days' 
notice  of  our  intention  to  do  so.  The  draft  has  just  been  returned 
with  the  curt  remark  that  it  was  refused. 

Under  the  circumstances  we  begin  to  feel  that  you  are  pur- 
posely neglecting  this  matter. 

Please  give  attention  to  this  request  for  payment  now  in  order 
that  the  matter  may  be  closed. 

Yours  very  truly. 


Credit  Manager 

The  following  letters  are  designed  to  put  the  delinquent 
in  a  position  that  he  cannot  defend,  so  that  he  must  either 
settle  or  brand  himself  as  bad  pay.  Similar  letters  can  be 
prepared  to  fit  any  of  the  excuses  which  may  be  given  by  a 
debtor: 

Dear  Sir: 

Our  draft  of  April  4  has  been  referred  to  us  by  your  bank  and 
in  reply  to  our  inquiry  they  state  that  you  claim  not  to  owe  us  this 
amount. 

As  it  is  correct  according  to  our  books,  we  respectfully  refer 
the  matter  to  you  for  more  definite  information. 

Yours  very  truly, 


Dear  Sir: 

Our  draft  for  $122  together  with  B-L  has  been  returned  by 
the  bank,  no  reason  being  assigned  for  non-acceptance. 

As  this  order  was  filled  and  shipped  in  entire  good  faith  and 
in  accordance  with  your  instructions,  we  feel  that  we  are  entitled 
to  a  letter  of  full  explanation  by  return  mail. 

Yours  very  truly, 


Dear  Sir: 

Our  draft  of  March  8  has  been  returned  to  us  by  your  bank  with 
a  notation  on  the  back  that  the  amount  is  incorrect.    As  we  find 


that  it  agrees  with  the  account  as  it  appears  on  our  books,  we  would 
ask  that  you  kindly  explain  to  us  wherein  the  difference  may  lie. 

Yours  very  truly. 


Dear  Sir: 

Our  draft  of   September  9  has  been  returned  to  us  by  your 
They  advise   us  in  reply  to  our  inquiry  that  you  claim  to 


bank. 


have  remitted  to  us  direct  to  cancel  the  charge! 

We  have  made  diligent  search,  but  fail  to  locate  any  trace  of 
remittance  and  therefore  refer  the  matter  to  you  for  more  definite 
information. 

Yours  very  truly. 


Dear  Sir: 

Our  recent  draft  has  been  returned  by  your  bank  with  a  nota- 
tion on  the  back  to  the  effect  that  they  do  not  wish  to  present  it 
imtil  we  advance  the  charges. 

Our  ledger  records  show  that  you  have  been  previously  notified 
of  this  indebtedness  which  is  past  due  and  we  hardly  feel  that  we 
should  be  asked  to  incur  any  expense  in  collection  of  the  amount. 

We  trust  that  the  matter  may  be  arranged  so  that  prompt  ship- 
ment can  be  made.  Should  there  be  any  reason  why  we  have  not 
heard  from  you  we  will  appreciate  particulars. 

Yours  very  truly, 

A  Good  Method  of  Sending  Drafts 

A  very  thorough  procedure  has  been  worked  out  by  A. 
M.  Brooke,  president  of  White  Swan  Spices  and  Cereals, 
Ltd.,  of  Toronto,  Canada,  to  insure  that  drafts  are  given 
proper  attention  by  members  of  his  own  organization,  by  the 
banks  issuing  them,  and  by  the  drawees.  Banks  frequently 
send  out  inexperienced  young  men  who  are  easily  put  off  by 
the  drawee  with  a  flimsy  excuse.  To  meet  this  situation,  a 
slip  of  instructions  to  the  banker  is  pasted  to  the  front  of 
every  draft,  showing  seven  of  the  commonest  excuses  and 
giving  the  bank  definite  directions  for  action  in  case  any  one 
of  these  is  offered  by  the  drawee.     (See  page  214.) 


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NEW   COLLECTION   METHODS 


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COLLECTION   PROCEDURE^URGENT 


2IS 


Every  bank  with  whom  the  company  deals  has  also 
received  a  copy  of  a  sheet,  "Instructions  to  Collection  Clerk." 
These  are  represented  herewith. 

Instructions  to  Collection  Clerk 

The  Collection  Clerk  should  understand  that  a  note  of  draft 
19  more  than  a  mere  "scrap  of  paper."  It  is  just  as  much  real  money 
to  the  customer  as  a  $5  bank  note  is  in  that  they  both  have  a  certain 
face  value.  Neither  one  is  of  intrinsic  value  excepting  when  turned 
into  gold. 

In  the  process  of  turning  a  customer's  paper  into  cash  the  bank 
has  every  right  to  exercise  scrupulous  care  in  completing  the 
negotiations,  and  the  simple  fact  should  be  kept  in  mind  that  when 
one  party  draws  on  another  the  assumption  is  that  the  drawee  owes 
the  money. 

Rather  than  to  return  a  draft  with  some  indefinite  reason,  it 
would  be  better,  in  the  case  of  a  disputed  amount,  to  accept  a  pay- 
ment on  account  advising  the  drawee  that  the  drawer  will  be 
required  to  make  whatever  adjustment  may  be  necessary.  That  is, 
provided  that  it  is  the  drawer's  error.  Point  out  to  the  drawee 
that  it  is  not  possible  for  a  bank  to  discharge  on  behalf  of  the  drawer 
any  debt  that  may  be  owed  by  the  drawee.  No  matter  what  the 
banker  may  do,  the  relation  between  the  drawer  and  the  drawee 
remains  the  same,  and  if  the  drawee  for  instance  were  to  pay  the 
drawer  more  than  is  owed,  he  could  recover  by  having  recourse  to 
law.  In  other  words,  it  simply  means  that  if  A  owes  B  a  certain 
sum  of  money  and  it  is  collectible  by  law  there  is  nothing  that  C 
could  do  when  merely  acting  in  the  capacity  of  an  agent  that  would 
discharge  the  debt;  excepting,  of  course,  when  A  paid  to  C  as  agent 
and  received  a  receipt  for  the  full  amount  of  his  debt. 

Many  retail  customers  of  large  manufacturers  and  wholesalers, 
appreciating  how  easy  it  is  to  let  a  draft  go  back  by  simply  not  pay- 
ing any  attention  to  it,  take  advantage  of  this  situation.  Besides 
keeping  the  manufacturer  out  of  his  money,  this  practice  causes 
endless  and  needless  annoyance.  When  the  drawee  gives  a  reason 
for  refusal,  for  instance,  "Writing" — let  him  write  the  reason  on 
the  back  of  the  draft  and  sign  it. 

When  he  says,  "Amount  not  correct" — ask  him  to  pay  the  cor- 
rect amount. 

The  attached  slip  of  instructions  to  banker  goes  back  with  every 
return   draft. 


2l6 


NEW   COLLECTION   METHODS 


m 


A  Common  Cause  of  Complaint 

Banks  can  hardly  be  blamed  for  carelessness  in  handling 
drafts  if  no  fee  accompanies  them.  A  wise  precaution  is  to 
send  a  fee  with  the  letter  asking  the  bank  to  exercise  all 
care  in  presentation,  referring  to  the  fee  and  offering  to  send 
an  additional  fee  if  the  practice  of  the  bank  requires  it. 

Various  letters  relating  to  the  use  of  drafts  are  shown 
in  the  following  chapters. 

The  "General  Manager's"  Letter 

After  having  taken  all  reasonable  steps  without  results, 
many  houses  are  in  the  habit  of  allowing  an  additional  time 
to  elapse  before  turning  the  account  over  to  an  outside  col- 
lector. In  a  great  number  of  instances  it  has  been  found 
advisable  to  utilize  this  period  by  making  another  appeal  of 
a  different  kind  from  some  higher  official  of  the  house.  The 
following  is  an  example  of  this. 

Dear  Sir: 

The  credit  department  has  just  laid  on  my  desk  the  folder  of 
your  correspondence  with  the  recommendation  that  we  send  your 
account  of  $ to  our  attorney  for  collection. 

You  cannot  blame  them  for  their  attitude,  because  there  has 
been  no  response  to  their  several  letters,  regarding  your  account. 
However,  I  cannot  bring  myself  to  take  any  drastic  action  without 
writing  you  personally.  I  really  believe  that  it  is  an  oversight,  and 
that  you  will  take  care  of  this  item  at  once. 

I  am  sure  that  you  will  answer  me  promptly,  and  I  am  going 
to  place  your  folder  on  my  desk,  awaiting  your  reply  and  remit- 
tance. Please  do  not  fail  me,  as  I  am  doing  this  against  the  advice 
of  our  credit  department 

Yours  very  truly. 


General  Manager 


The  company  issuing  this  letter  sells  vacuum  cleaners 
direct  to  dealers.  "It  has  produced  better  results  than  any 
other  in  our   experience,"  writes  the  president.     It  is  of 


U 


COLLECTION   PROCEDURE— URGENT 


217 


course  an  adaptation  in  principle  of  the  "discussion"  letter 
from  the  credit  manager.  (See  Chapter  XIX.)  Its  psychology 
is  discussed  on  page  161. 

Warning  of  Legal  Action 

A  certain  hardware  jobber  in  the  Middle  West,  when  he 
intends  to  transfer  an  account  to  a  local  attorney,  first  sends 
the  customer  a  letter  giving  warning  of  draft  to  be  followed 
by  attorney's  action: 

Dear  Sir: 

According  to  our  bookkeeper's  report,  the  past-due  bills  in  your 

account  amount  to  $ and  as  the  invoices  of  are  still 

unpaid,  we  are  at  a  loss  to  understand  why  our  several  urgent  letters 
asking  for  a  settlement  seem  to  have  been  altogether  ignored.  If 
you  realize  that  you  have  not  yet  paid  for  goods  sold  to  you  on 

60-day  terms  more  than months  ago  we  think  you  will  con- 

cede  our  treatment  of  your  account  has  been  exceedingly  consid- 
erate and  that  we  are  entitled  to  be  paid  without  further  delay 
expense,  or  annoyance.     We  shall  be  greatly   obliged   if  you  wili 
promptly  forward  a  remittance  of  $ 

Should  you  make  no  response  to  this  letter  we  shall  be  forced 
to  the  conclusion  that  more  effective  measures  must  be  adopted  to 

gam  this  long  overdue  settlement  and  accordingly  on  your 

remittance  not  having  been  received,  we  shall  draw  upon  you  through 

^  5    u    *?   ^^^  ^^^  ^^^^^  mentioned  amount 

and  the  bank  will  be  directed  to  place  the  claim  in  the  hands  of 
our  local  attorney  for  prompt  action  in  the  event  the  draft  is  not 
paid  on  presentation.  We  are  reluctant  to  adopt  such  severe 
measures  or  even  to  mention  them  but  cannot  grant  a  further  exten- 
sion and  must  find  some  means  of  making  the  collection.  After 
the  accommodation  you  have  had  from  us  we  hope  you  will  not 
put  us  to  the  annoyance  and  expense  of  collecting  from  you  in  this 
manner.  "^ 

Yours  very  truly. 

Failing  to  hear  from  this,  he  sends  a  copy  of  the  letter 
shown  below  to  the  customer's  bank,  accompanying  it  with 
a  letter  from  the  house  attorney  to  be  handed,  in  case  of 
failure  to  honor  the  draft,  to  an  attorney  named  therein. 


2l8 


NEW   COLLECTION   METHODS 


Gentlemen : 

Our  sight  draft  for  $ representing  goods  sold  on  6o-day 

terms  in  and  to  of  ,  to- 
gether with  interest  on  the  amount  is  enclosed.  Their  mercantile 
ratings  are  very  good  and  we  utterly  fail  to  understand  why  no 
response  to  our  several  letters  urgently  asking  for  a  settlement  has 
been  made.  Quite  likely  it  is  a  case  of  carelessness  and  we  wish 
you  would  kindly  use  your  best  efforts  to  collect  this  item.  If  you 
succeed  in  collecting  before  the  end  of  this  month,  charge  us  with 
a  commission  of  . .  %  for  your  trouble. 

If  you  are  unable  to  collect  by kindly  hand  or  mail  the 

draft,  together  with  this  letter,  to  attorney    of 

who  will  understand  that  we  take  his  name  from 

the  Attorney's  National  Clearing  House  list  and  that  we  wish  him 
to  adopt  promptly  such  measures  as  may  be  necessary  for  immedi- 
ate collection  of  the  account.  If  the  claim  goes  into  the  hands  of 
the  attorney,  we  should  like  to  have  him  notify  us  of  that  fact  at 
once. 

We  thank  you  in  advance  for  your  assistance  in  this  matter  and 

enclose  cents  in  stamps  to  cover  any  postage  expense  you 

may  be  put  to. 

Yours  very  truly, 

This  is  the  letter  written  to  the  bank  by  the  attorney  for 
the  house,  which  is  handed  by  the  bank  to  the  local  attorney: 

Gentlemen : 

I   enclose   a   draft    for   $ upon    of 

You     will     notice     the     draft     is     drawn     by 

to  my  order  and  is  indorsed  payable  to  your  order. 

I  understand  debtors  are  financially  responsible  and  there  is 
no  dispute  as  to  the  correctness  of  the  account.     Their  letter  of 

to     ,    traveling    salesman    for    my    client, 

promising  to  pay  in  full  within  a  week  or  ten  days,  is  attached. 

Why  the  debtors  do  not  pay  has  not  been  explained.  The 
bills  were  sold  on  6o-day  terms  and  some  of  the  items,  as  you  will 
observe,  are  now  about  seven  months  overdue.  A  further  exten- 
sion is  out  of  the  question.     Will  you**  kindly  use  your  best  efforts 

to  collect  the  claim?    If  you  succeed  in  collecting  it  before   

charge  me    ..%    for  your  trouble.     If   you    fail   to   collect    it   by 

,  please  hand  or  mail  this  letter  together  with  all  of  the  papers 

enclosed  to  attorney    of    ,   who 

will  accept  this  letter  as  his  instructions  to  bring  suit  or  to  adopt 


COLLECTION    PROCEDURE— URGENT 


219 


whatever  line  of  action  seems  necessary  for  the  prompt  collection 
of  this  long  overdue  balance.  In  that  event  I  would  like  to  have 
him  notify  me  as  soon  as  the  papers  reach  his  hands. 

I  hope  you  will  be  able  to  make  the  collection  yourself  and 
thank  you  in  advance  for  your  best  efforts  in  that  direction.  To 
cover  any  postage  expense  to  which  you  may  be  subjected,  I  en- 
close   cents  in  stamps. 

Yours  very  truly, 

A  letter  sent  the  delinquent  under  similar  conditions  by 
another  house  is  the  following: 

Dear  Sir: 

Our  draft  of  August  i  has  been  returned  by  our  bankers  marked 
"no  attention."  Previous  to  sending  this  draft  numerous  statements 
and  letters  were  sent  to  you  requesting  a  check  to  cover  this  long 
past-due  account. 

We  dislike  very  much  to  take  any  action  that  would  cause  you 
annoyance  and  inconvenience  but  unless  the  matter  is  given  proper 
consideration  immediately,  we  shall  place  all  papers  in  the  hands 
of  our  Legal  Department. 

Assuming  that  you  may  prefer  to  make  payment  direct  and 
avoid  suit,  we  will  hold  our  action  in  abeyance  until  Wednesday, 
September  10.  Upon  failure  to  receive  payment  within  the  stated 
time  other  steps  will  be  necessary. 

Yours  very  truly, 


Credit  Manager 


Other  Threats  of  Suit 

Other  letters  giving  warning  of  legal  procedure  are  shown 
below : 

Dear  Sir: 

Having  been  unsuccessful  in  our  attempts  to  draw  out  a  response 
of  any  sort  to  our  requests  for  a  settlement  of  your  past-due  ac- 
count we  take  it  for  granted  that  you  would  prefer  to  deal  with 
our  attorneys  and  are  governing  ourselves  accordingly. 

We  believe  matters  will  be  arranged  amicably  and  without  extra- 
ordmary  delay  or  expense. 

Yours  very  truly. 


i 


220 


NEW   COLLECTION   METHODS 


Dear  Sir: 

Our  various  letters  and  telegrams  remain  unanswered.  Your 
March,  April,  and  May  purchases  amounting  to  $95.15  as  shown 
by  the  attached  statement  are  long  past  due. 

We  have  been  quite  lenient  in  allowing  you  this  extra  time  and 
must  now  insist  on  immediate  payment,  otherwise  the  matter  will 
be  placed  in  the  hands  of  our  attorney  for  immediate  attention. 

Please  do  not  oblige  us  to  follow  this  course  as  under  the 
circumstances  it  will  prove  distasteful  to  you  as  well  as  to  our- 
selves. 

Yours  very  truly, 


Credit  Manager 


Dear  Sir: 

You  have  defaulted  on  the  payments  of  your  account  for  over 
three  months,  and  therefore  the  full  amount  automatically  becomes 
due. 

As  you  have  not  responded  to  our  letters  we  are  drawing  on 

you  this  day  through  the   for  the  full  amount  of 

your  contract,  and,  unless  this  is  paid  promptly,  our  attorneys  will 
be  instructed  to  proceed  against  you. 

Please  be  ready  to  take  up  the  draft  when  the  bank  presents  it. 

Yours  very  truly, 


. 


CHAPTER    XXI 

COLLECTION  PROCEDURE— THE  ULTIMATUM 

The  House  Collection  Agency 

Many  houses  desire  to  keep  their  hands  on  an  account  as 
long  as  possible.  To  protect  a  customer  against  harsh  deal- 
ings from  an  outsider  with  consequent  loss  of  good- will  and 
to  save  for  the  house  the  collector's  fee,  they  try  the  effect 
of  one  or  more  form  letters  and  a  draft  issued  on  a  letter- 
head bearing  the  name  of  a  collection  agency — they  them- 
selves being  the  agency.  The  following  letters  were  employed 
by  a  manufacturer  selling  direct  to  customers.  The  first  one 
was  sent  to  the  customer. 

Dear  Sir: 

We  have  been  informed  by  the  B.  F.  Heath  Co.  that  they  are 
unable  to  get  any  satisfaction  from  you,  regarding  their  invoice  of 

for  $ ,   which   is   for   goods  purchased  by 

you. 

They  have  turned  this  account  over  to  us  for  collection,  but 
before  we  do  anything,  we  want  to  ask  if  it  is  not  possible  to  have 
a  friendly  settlement.  We  are  sure  that  our  client  would  prefer 
this,  and  it  certainly  would  also  be  to  your  advantage. 

If,  however,  we  do  not  hear  from  you  by ,  we 

shall  be  obliged  to  forward  a  draft  for  this  amount  to  your  local 
bank  with  instructions,  if  it  is  not  paid  by  you,  to  hand  it  to 
our  attorney  in  your  city. 

We  hope,  however,  that  this  action  will  not  be  necessary. 

Yours  very  truly, 

Collection  Agency 

By 

The  following  is  a  letter  which  the  manufacturer  sent  to 
the  bank: 


221 


w 

k 


k 


222  NEW   COLLECTION   METHODS 

Gentlemen ; 

Enclosed  you  will  find  our  draft  drawn  on   

for   $ ,    for    the    goods    shown    on    the    enclosed    bill.    This 

bill  is  a  copy  of  the  original  invoice  of  our  client. 

Will  you  please  see  that  this  draft  is  personally  presented  to 

Mr and  if  it  is  not  paid  by  him,  please  turn  this 

entire  matter,  including  the  refused  draft  and  the  duplicate  invoice 

over  to ,  Attorney  at  Law. 

Yours  very  truly, 

Collection  Agency 

By  

The  following  letter  was  sent  to  the  attorney,  together 
with  a  copy  of  the  bank  letter: 

Dear  Sir: 

Enclosed  you  will  find  copy  of  our  letter,  to  the 

Bank,   regarding   our   account   against    We   ask 

them  to  deliver  this  to  you  for  collection,  under  the  usual  collection 
terms  of  io%,  unless  otherwise  agreed  upon. 

Yours  very  truly, 

Collection  Agency 

By 

Another  company  selling  on  instalments,  desires  to  pre- 
serve good-will  as  long  as  possible.  Accordingly  at  the  end 
of  lengthy  correspondence  it  issues  two  letters  at  iS-day 
intervals  on  the  letter-head  of  its  own  agency.  Harsh 
language  is  avoided. 

Dear  Sir: 

Our  client,  the  of  New  York,  has  instructed 

us  to  collect  a  claim  which  they  hold  against  you  amounting  to  $ 

The  chief  facts  in  the  case,  as  reported  to  us,  are:     You  signed 

on  a  definite  contract  to  pay  $ for  goods  and  service 

rendered  by  them.  Our  client  alleges  that  he  has  lived  up  to  his 
contract  in  every  respect,  and  that  you,  on  the  other  hand,  have 
disregarded  your  obligation.     According  to  our  client's  records  you 

have  paid  only  $ and  the  total  balance  of  the  account  is  now 

long  overdue. 


COLLECTION  PROCEDURB-THE  ULTIMATUM        223 

Do  you  dispute  this  statement  of  facts?  Have  you  any  counter 
claim?     Is  there  any  reason  why  you  should  not  pay  the  account 

as  stated? 

An  envelope  for  your  use  by  return  mail  is  enclosed.  Please 
see  that  it  brings  either  a  definite  statement  for  us  to  submit  to  our 
client  or  a  remittance. 

Yours  very  truly, 

Collection  Agency 


Manager 


Dear  Sir: 

Please  refer  again  to  our  letter  which  was  written  with  one 

purpose  in  view— to  adjust  your  account  of  $ without  further 

expense  and  damage  to  your  credit  reputation. 

Our  long  experience  in  the  collection  of  past-due  and  delinquent 
accounts  suggests  a  number  of  possible  ways  to  treat  this  particular 

account. 

In  the  absence  of  a  statement  from  you  relative  to  your  posi- 
tion in  this  matter,  we  shall  assume  that  you  do  not  care  to  defend 
your  action  and  shall  proceed  accordingly. 

Whether  or  not  you  do  reply  to  this  letter  is,  of  course,  a  matter 
of  your  own  judgment. 

We  shall  withhold  further  action  for  one  week. 

Yours  truly, 
Collection  Agency 


Manager 

Still  another  instalment  company,  after  giving  the  debtor 
many  opportunities  for  payment  or  explanation,  issues  a 
letter  on  agency  stationery,  more  severe  than  those  shown 
above.  At  the  same  time  it  sends  a  printed  form  to  the 
bank.  The  harshness  is  explained  by  the  unusual  credit  risk 
taken  in  this  instance. 

Dear  Sir: 

The  A  B  C  Corporation  have  sent  us  your  account  for  col- 
lection. 


I 

Ira 


hi 
Pi 


224 


NEW   COLLECTION  METHODS 


You  know  all  about  the  numerous  letters  they  have  written  you. 
You  know  how  you  have  failed  to  fulfill  your  part  of  the  contract 
made  with  the  A  B  C  Corporation.  So  it  is  unnecessary  to  spend 
any  time  trying  to  convince  you  why  you  should  do  as  you  had 
agreed  to. 

Perhaps  you  do  not  know  that  collecting  debts  which  people  con- 
tract and  then  fail  to  pay  is  our  specialty.  This  is  how  we  make 
our  living. 

Perhaps  you  do  not  know  that  we  want  immediate  action  from 
you  regarding  this  account. 

When  an  account  is  given  us  for  collection  by  any  of  our  clients, 
our  system  is  to  write  ONE  letter  to  the  debtor.  This  is  the  one 
letter  to  you.  It  gives  you  the  chance  to  settle  your  account  with- 
out a  law  suit.  It  gives  you  the  chance  to  make  any  explanation 
you  have  to  offer  for  past  carelessness  and  neglect  of  your  just 
obligation.  It  gives  you  the  opportunity  to  resume  your  payments 
and  conduct  your  affairs  with  the  A  B  C  Corporation  on  a  business- 
like basis. 

Our  method  of  handling  accounts  like  yours  is  to  send  this  one 
letter  and  also  to  draw  a  draft.  So  we  have  today  sent  you  this 
draft  in  care  of  your  local  bank.  It  is  important  that  you  arrange 
to  honor  this  draft.  The  bank  has  instructions  to  give  you  five  days 
to  arrange  to  pay  it. 

Now  about  paying  this  draft,  allow  us  to  tell  you  something 
based  on  our  long  experience  in  collecting  debts.  If  you  pay  this 
draft,  it  is  almost  certain  that  you  will  continue  to  settle  your  ac- 
count without  further  unpleasantness.  And  if  you  do  not  pay  the 
draft,  it  is  certain  you  will  be  sued,  not  only  for  the  balance  due 
the  A  B  C  Corporation,  but  with  the  Court  costs  and  attorney  fees 
added.  ^  ' 

For  our  system  provides  that  when  a  debtor  does  not  take  ad- 
vantage of  this  ONE  letter— does  not  pay  the  draft—does  not  seem 
to  care  whether  the  debt  is  paid  or  NOT— we  send  the  account  to 
a  local  attorney,  with  directions  to  bring  suit  at  once. 
^  So  from  every  standpoint— yours— ours— the  ABC  Corpora- 
tion s— we  hope  you  will  give  immediate  attention  to  this  letter 
Pay  the  draft  and  write  us  as  to  exactly  what  you  can  do  about 
the  balance  of  your  account. 

Yours  ^ery  truly. 
The  Metropolitan  Collecting  Co. 

The  following  is  the  draft  and  memorandum  sent  to  the 
bank: 


COLLECTION   PROCEDURE— THE   ULTIMATUM 


225 


New  York  City 
$ 


Value  received  and  charge  account  of 
To 


At  five  days*  sight,  pay  to  the  order  of  the  bank  named  below 
Dollars 


Metropolitan  Collecting  Co. 
203  Broadway 
New  York  City 


For  credit  on  our  account  with 


Gentlemen : 

We  ask  you  to  present  for  payment  the  attached  draft  to  your 
order. 

Please  return  this  memorandum  when  sending  remittance,  to  en- 
able us  to  identify  the  account  drawn  against. 

In  the  event  that  this  draft  is  returned  UNPAID,  we  would 
appreciate  knowing  whether  we  have  the  correct  address  and  if  so, 
what  reason  is  given  for  non-payment. 

Kindly  have  this  draft  presented  personally.  We  enclose  pres- 
entation fee.    If  there  is  a  further  charge  we  will  he  glad  to  pay  it. 

Yours  very  truly. 
The  Metropolitan  Collecting  Co. 
203    Broadway,    New    York    City 

The  Telephone  in  Coliections 

When  a  customer  hears  through  the  telephone  the  voice 
of  the  credit  manager  asking,  in  a  quiet  tone,  for  settlement 
of  his  account  or  a  definite  arrangement  that  will  clean  it  up, 
the  effect  is  almost  as  if  this  important  official  had  turned 
collector  and  walked  into  his  place  of  business.  It  combines 
the  urgency  and  attention-getting  quality  of  the  usual  col- 
lector, with  the  personal  prestige  of  the  credit  man.  The 
customer  finds  it  very  hard  to  avoid  giving  a  definite  answer. 
The  quiet  tone  of  voice  suggests  possible  embarrassment  in 
case    the    conversation    were    overheard.      Frequently    the 


226 


NEW   COLLECTION   METHODS 


COLLECTION   PROCEDURE-THE  ULTIMATUM 


227 


debtor  will  be  obliged  to  answer  the  telephone  in  the  presence 
of  other  persons,  and  while  he  may  use  this  as  a  reason  for 
wriggling  out  of  a  reply,  in  more  cases  he  will  make  some 
arrangement. 

For  the  careless  or  tricky  debtor  this  conversation  can  be 
made  brief  and  incisive,  though  the  language  should  always 
be  very  carefully  restrained.  Under  different  circumstances 
the  tone  can  be  definitely  friendly,  and  the  speaker  can  show 
an  interest  in  his  customer's  business,  closing,  of  course,  with 
a  definite  request  for  action. 

The  Registered  Letter 

When  the  account  has  reached  the  stage  of  urgency,  a 
registered  letter  has  the  value  of  assuring  the  creditor  that 
his  communication  has  been  received;  if  no  reply  is  forth- 
coming, the  debtor  has  definitely  "classified  himself**  by 
deliberately  overlooking  his  obligations.  A  courteous  as- 
sumption to  make,  in  case  the  registered  letter  is  used,  is  that 
previous  correspondence  has  been  overlooked  by  some  subor- 
dinate, and  this  means  is  taken  of  bringing  the  account 
directly  to  the  attention  of  a  responsible  official. 

.  The  Telegram  in  Collections 

"If  you  could  see  a  merchant's  desk,  you  would  under- 
stand why  a  telegram  has  value,"  says  a  hardware  jobber. 
"Letters  are  lost  on  it." 

The  three  following  paragraphs  are  taken  from  a 
Western  Union  Telegraph  folder  entitled  "The  Telegraph  Is 
the  Surest  Way." 

The  Facts.  Many  large  business  houses  have  solved  the  problem 
of  collecting  from  slow-pay  customers  and  raising  money  on  bad 
debts.    They  use  the  telegram. 

This  idea  of  using  the  telegram  was  suggested  to  a  number  of 
representative  firms.     Several  expressed  disbelief  in  the  telegram's 


superiority  as  a  collecting  agent.  They  were  persuaded  to  give  it 
a  trial.     The  results  were  astonishing. 

Remittances  were  received  on  accounts  upon  which  all  other 
methods  had  proved  futile. 

The  Reason.  The  telegram  gets  results  because  it  commands 
preferred  attention.  Its  brevity  and  urgency  suggest  immediate 
action.     It  makes  a  lasting  impression. 

The  telegram  carries  a  punch  that  cannot  he  obtained  in  a  letter. 

Try  It  Out.  Pick  out  your  delinquent  accounts  and  send  col- 
lection telegrams.  You  can  use  night  letters,  day  letters,  or  fast 
telegrams — each  one  gets  the  same  satisfactory  results.  Only  one 
copy  of  the  text  and  a  list  of  addresses  is  required. 

The  telegram,  as  your  busiest  agent,  will  soon  become  your 
biggest  collector. 

The  Western  Union  Telegraph  Company  suggests  the 
following  telegrams  for  collection  purposes: 

I.    Expected    remittance    not    received.       Cannot    wait    longer. 

Please  remit  immediately. 
Your  old  account  must  be  paid.     Unwilling  to  wait  longer. 
Our  patience  is  exhausted.    Must  have  account  paid  at  once. 
Unwilling  to  wait  longer,  account  overdue.     Please  remit  at 

once. 

5.  Will  draw  on  you  Monday  unless  we  receive  remittance. 

6.  Our  account  long  past  due.     Please  remit  at  once. 

7.  Please  remit  for  account  due.    Imperative  need.    Thank  you. 

8.  Our  account  long  overdue.     Please  remit  by  return  mail. 

9.  We  call  your  attention  to  our  account. 
Your  delay  in  remitting  very  annoying.    Your  prompt  at- 
tention requested. 

Expect  payment   on   account  without   further   delay.    Don't 

disappoint. 
Regret  cannot  extend  further  credit  until  account  is  paid. 

13.  Pleased  to  fill  order  when  you  remit  for  account  due. 

14.  A  remittance  for  our  invoice  of  December  first  much  appre- 
ciated. 

15.  Unless  remittance  is  received  promptly  must  decline  further 
credit. 

16.  Have  you  overlooked  us?     Oblige  us  with  check  if  possible. 

17.  Why  don't  you  answer  our  letters?    Account  must  be  paid 
without  further  delay. 

18.  Why   have  you  not   paid   December   invoices?     Remittance 
greatly  appreciated. 


2. 

3- 
4. 


10. 


II. 


12. 


i 


1  : 


228  NEW   COLLECTION   METHODS 

19.    Should  not  telegraph  unless  very  imperative.     Kindly  send 
check  on  account. 
^        20.    Disappointed  no  remittance  from  you.     Make  a  noise  like  a 
^  check  please. 

21.  Very    important    remittance    reach    us    on    Monday.      Large 

payments  to  meet. 

22.  Understand  your  collections  are  good.    Kindly  let  us  have 

check  on  account. 

23.  Wire  our  expense  if  we  can  have  remittance  by  December 

first.    Your  help  appreciated. 

24.  A  check   for  account  by  return  mail  will  be   of  great  as- 

sistance. 

The  Outside  Collection  Agency 

The  function  of  the  collection  agency,  as  stated  at  the 
beginning  of  this  chapter,  is  to  save  the  credit  man  time  in 
dealing  with  slow  and  doubtful  accounts  to  which  he  has 
already  given  as  much  attention  as  he  thinks  desirable.  The 
disadvantage  of  employing  an  agency  is  twofold.  First,  it 
is  likely  to  injure  or  destroy  good-will;  and  second,  the 
creditor  may  fall  into  the  hands  of  an  unreliable  agency. 
For  this  latter,  however,  there  is  no  excuse,  as  good  agencies 
can  be  found  in  every  section  of  the  country.  Many  of  the 
best  agencies,  moreover,  take  extraordinary  pains  to  show 
fairness  and  to  act  as  skilled  mediators  between  creditor  and 
debtor. 

The  effect  of  the  agency  on  the  debtor  is  largely  psycho- 
logical; if  this  were  not  true,  the  agency  would  in  every  case 
proceed  directly  to  suit.  When  approached  by  it,  the  delin- 
quent realizes  that  the  time  for  evasion  and  neglect  has  gone 
past.  His  fear  of  ultimate  consequences  is  sharpened,  but  he 
knows  that  he  still  has  many  opportunities  for  a  slight  delay 
before  driving  the  agency  to  the  expense  of  suit.  Accord- 
ingly, one  of  the  best  cues  for  the  agency  is  to  point  out  that 
every  additional  delay  will  merely  result  in  more  expense*  for 
the  debtor. 


COLLECTION   PROCEDURE— THE   ULTIMATUM 


229 


Use  of  Appeal  by  the  Agency 

All  the  resources  of  collection  psychology  lie  open  to  the 
collector  or  outside  agency,  with  much  of  the  same  force 
that  they  possess  for  the  creditor.  Only  resale  arguments 
lose  much  of  their  meaning  when  proceeding  from  it,  because 
the  agency  has  no  goods  to  sell  nor  credit  to  extend.  But 
even  so,  it  can  urge  with  great  force  the  debtor's  advantage 
in  maintaining  his  standing.  This  will  have  less  effect  if  all 
these  arguments  have  already  been  canvassed  by  the  collec- 
tion manager  for  the  creditor;  but  many  business  houses, 
both  retail  and  wholesale,  utterly  fail  to  use  means  of  col- 
lection that  lie  ready  near  their  hands,  and  turn  the  account 
over  to  the  agency  before  even  ordinary  means  have  been 
exhausted.  The  agency  can  have  the  history  of  the  trans- 
action before  it  and  can  judge  for  itself  what  steps  will  be 
most  effective.  It  can  resort  to  draft,  with  notice  in  advance, 
it  can  employ  letters  either  form  or  dictated,  it  can  be 
both  lenient  and  severe,  before  resorting  to  whatever  legal 
steps  it  deems  advisable  or  reporting  to  the  creditor  that 
circumstances  do  not  appear  to  justify  suit. 

A  successful  retail  collector  recognizes  this  situation  by 
beginning  one  of  his  letters:  "This  claim  was  left  with  us 
for  collection,  not  because  of  any  less  confidence  in  your 
word  of  honor  or  integrity,  but  because  our  client  is  desirous 
of  getting  the  account  settled  and  charged  off  his  books." 
His  letters  are  characterized  by  insistent  questions,  can- 
vassing the  whole  list  of  reasons  for  the  debtor's  failure  to 
reply  and  urging  an  answer  in  order  to  safeguard  his  repu- 
tation for  promptness.  He  warns  the  debtor  that  he  never 
gives  up;  vigilance  and  persistence  are  his  mottoes;  he  will 
not  rest  so  long  as  any  reasonable  means  can  be  found  for 
securing  payment ;  but  when  these  are  exhausted,  he  will  cer- 
tainly and  unhesitatingly  use  the  legal  means  that  lie  ready 
to  his  hand. 


i 


U 


i 


Mi 


230 


NEW   COLLECTION   METHODS 


The  Service  of  the  Agency 

What  is  the  service  of  a  collection  agency?  One  of  the 
forms  employed  by  a  well-known  agency  is  reproduced  here- 
with. A  letter  from  the  creditor  gives  warning  that  the 
account  will  be  handed  to  a  bonded  attorney.  Following  this, 
the  creditor  sends  direct  to  the  debtor  an  advance  notice  of 
draft,  informing  him  that  if  the  draft  is  not  honored  the 
account  will  be  turned  over  to  an  attorney  for  collection. 
The  next  step  is  to  mail  the  draft  to  the  bank.  The  sheet 
of  which  the  draft  is  a  part  (see  illustration,  page  231) 
bears  a  slip  instructing  the  bank,  in  the  case  of  failure  to 
pay,  to  hand  the  draft  to  an  attorney  who  is  named  below. 
The  slip  of  instructions  to  the  bank  can  be  torn  off;  the  letter 
of  advice  to  the  attorney  remains  a  part  of  the  draft.  A 
duplicate  of  this  sheet  is  mailed  direct  at  the  same  time  to 
the  debtor  with  the  exception  that  in  place  of  the  slip  of 
instructions  to  the  bank  the  uppermost  slip  is  addressed  to 
the  debtor  informing  him  of  the  steps  that  are  being  taken. 
Thereafter  the  account  is  in  the  hands  of  the  attorney  for 
collection  under  special  conditions,  printed  on  the  back  of 
the  draft. 

The  Local  Attorney  as  Collector 

Among  the  quantities  of  claims  turned  over  to  any  local 
attorney  for  collection  some  will  be  upon  people  he  knows  to 
be  "good,"  some  will  be  upon  those  he  knows  to  be  notori- 
ously poor  pay,  and  some  will  be  for  goods  that  were  pur- 
chased through  oversolicitation  of  salesmen  or  that  turned 
out  not  worth  the  purchase  price.  The  strength  of  the  attor- 
ney in  every  case  is  that  he  is  on^the  ground  and  by  personal 
conversation  can  discover  where  the  cause  for  disagreement, 
if  any,  lies.  If  he  shows  fairness  and  friendliness,  combined 
with  an  unhesitating  determination  to  take  the  necessary 
steps,   he  can,   in  most  cases,  secure  without   friction  any 


COLLECTION   PROCEDURE^THE  ULTIMATUM 


231 


•USJSCTl  DRAFT  ON 


^TSSi  i^SSTSri^lSc^^ 


INSTRUCnriONB  TO   BANK. 
DIRECT  '^^^SSi^fS^^'^''^'^''  «>«*/^-l«r^.  PLEASE  REMTT  PROCBBM 


WITH  cun 


'  CXCMAHSa. 


Holdiiw  Bowl  af  tte  U.  S.  F.  ud  a  <X 


.ff  y«.n»k.'>»f.  ?K<}ii»K.... 


9>. 


l^ETTER   or   ADVICB   TO   ATTORNBY, 
llMtiMa*  •  HaU«r  «f  lU  BmiJ  •(  ^  Uirftod  State*  PIMilr  «^ 


Addrest. 


AII9'IIN&tf« 


^^  Sttt-^PttrwuHt  of  mmnexed  Draft  having  htm  refuted,  you  mre  hereby  mutheriaed  la  lakg 
prompt  actum  for  U$  eoUectiom  oh  the  terms  sHpuiated  on  the  hath  hereof.  Promptly  acAnowledre  retaiM 
4ndcdvtsawhat.couruuhestlopmrsiie.    Wire,  if  im  ^amr  apimiam  the  tfrmmstmmees  warrmmT     ^^ 

Rupet{fuUr» 


Rcatrr  atx  moncys  coixscteo 

•V  p.  O.  ItONCV  OROCII.  BANK 
CXCHANQK  OR  EXmCSS. 


Address. 


■eO  NOT  OCTACN  FROM  DRAFT. 


Bm<  a<  Uattcd  StetM  FUalUgr  and  OoHWlr  Oki. 


#■ 


DRAFT  OP  A  HOLOBR  OP  Xtm  BOND  OP  THB 

UNITED  STATES  FIDEUTV  AND  GUARANTY  COMPANY'S 

DCPAfTTMCNT  OF  GUABANTKCO  ATTOMNIVS. 

TotRl  Ratoorcet.  Orer  $7,500,000.  Home  OfBoQ,  BALTDIORB,  IID. 


.19 


AL 


JnitU,  hiy  to  th4  <yHUr  </th^ 


.Jthe  9um  of.. 


Voiu*  reoewtd  €md  ^utrge  to  acwmt  </^ 


JBartk  <^ 
.DoUan, 


fV. 


OBRTOR. 


Addre98. 


Addre8$.. 


■•MilW  Baad«<  UalM  8tMn  FMa*^  u4 


Agency  Draft 

This  form  shows  the  duties  of  bank  and  attorney  in  clear  and  simple  outline.     The 

duphcate    to   the   drawee    has   a   letter    to   him    on   the   upper   section    instead   of   the 

instructions  to  the  bank.      (This  form  patented  in  U.  S.  July  ai,  1914.) 


^^.:^i 


'  ( 


>       ! 


232 


NEW   COLLECTION    METHODS 


accounts  that  are  really  collectible.  "I  have  absolutely  no 
interest  in  this  matter,  except  to  see  that  fairness  and  justice 
are  done,"  writes  one  attorney.  "Please  call  on  me  on  the 
day  you  get  this  letter  or  call  me  up  by  telephone  and  make 
an  appointment  so  as  to  get  this  matter  off  your  mind  with 
the  least  possible  annoyance." 

The  Bank  as  Collector 

Good  advice  on  this  head  Is  given  in  the  December,  1910, 
Bulletin  of  the  National  Association  of  Credit  Men.  When 
a  draft  has  been  returned  unpaid  and  there  is  but  one  bank 
in  a  town,  a  new  draft  should  be  sent  with  an  itemized  state- 
ment. Allow  the  bank  i  or  2  per  cent  for  collection;  it  is 
often  wise  to  give  the  banker  the  full  facts  of  the  case. 
Frequently  the  bank,  as  the  result  of  a  carefully  worded 
letter,  will  succeed  in  collection  where  an  attorney  might 
not  be  able  to  succeed  short  of  suit,  if  at  all.  Often  the 
creditor  will  find  it  satisfactory  to  address  the  cashier  instead 
of  the  bank  itself.  Copies  of  all  letters  sent  by  the  creditor 
to  the  debtor,  can,  after  the  account  has  been  turned  over, 
be  sent  to  the  bank  together  with  the  explanation  that  they 
are  written  to  help  the  bank  in  its  work. 

One  well-known  jobber  is  accustomed  to  ask  a  bank  to 
try  to  collect  $200  on  a  $500  account  within  10  days  after 
receipt  of  the  papers;  to  collect  $150  more  in  the  succeeding 
ten  days;  and  to  secure  the  remainder  within  another  10 
days.  According  to  its  success  with  this  program,  the  bank 
is  offered  2,  3,  or  5  per  cent.  If  it  fails  to  collect,  it  is 
instructed  to  send  the  papers  at  once  to  an  attorney  named 
by  the  creditor.  In  making  Itirge  use  of  the  banks  under 
this  program,  this  manager  has  found  it  advisable  always  to 
enclose  25  cents  in  stamps  with  the  papers. 


CHAPTER    XXII 


TYPICAL  COLLECTION  PROCEDURES  ANALYZED 


Procedure  of  a  Wholesale  House 

A  certain  large  wholesaler  of  men's  furnishings  adopts 
in  general  the  practice  of  issuing  before  the  bill  is  due  a  state- 
ment without  comment  and  stamped  "Not  due."  This 
he  follows  with  a  statement  without  comment  when  the  bill 
is  due.  If  the  customer  takes  a  discount  when  not  entitled  to 
it,  a  leeway  of  a  week  is  allowed  on  the  assumption  of 
error;  but  if  more  than  this  is  taken,  a  letter  is  sent  without 
fail.  If  no  remittance  is  received  within  a  week  or  ten  days, 
a  simple,  courteous  reminder  is  issued,  followed  after  an- 
other interval  by  a  similar  letter.  When  the  account  is  a 
month  overdue  it  is  turned  over  to  the  credit  department  by 
the  bookkeeper  who  has  been  handling  previous  steps.  Then 
follows  a  letter  from  the  credit  department,  working  for  a 
reply.  Part  payments  are  frequently  offered.  The  manager 
and  his  assistants  maintain  a  diplomatic  attitude,  endeavoring 
to  use  the  prestige  of  the  house  and  its  service  to  customers 
as  a  means  of  securing  payment,  without  driving  a  debtor 
into  a  comer  and  handing  him  an  ultimatum. 

Another  Wholesaler's  Procedure 

The  credit  manager  for  a  well-known  silk  firm,  dealing 
with  a  somewhat  different  class  of  trade,  finds  it  advisable 
to  follow  his  second  reminder  with  a  draft,  notifying  the 
customer  that  this  will  be  handed  to  an  attorney  if  not  paid 
on  presentation;  but  in  practice  a  certain  length  of  time  is 
often  allowed  to  elapse  before  the  attorney  is  actually  notified 

233 


234 


NEW   COLLECTION   METHODS 


to  go  ahead.  "Suppose  that  when  an  account  has  run  for  a 
month  and  is  not  yet  due,  I  receive  information  that  makes 
it  look  hazardous.  At  once  I  stop  further  sale.  The 
ordinary  credit  man,  having  decided  that  the  account  is  bad, 
waits  for  his  bill  to  mature  hoping  it  will  be  paid.  But  I  go 
straight  up  to  the  man  and  offer  him  an  extra  discount. 
'Frankly,'  I  say,  *I  have  lost  confidence  in  you.*  If  the  man 
refuses  this  incentive  to  pay,  I  know  he  is  'busted,'  and  then 
I  know  what  to  do.  I  never  encumber  my  mind  with  affairs 
of  that  sort — I  get  them  through  with  as  quickly  as  possible 
— ^but  my  methods  of  collection  are  as  varied  as  my  accounts; 
every  case  needs  individual  treatment."  The  same  manager 
testifies  that  98  to  99  per  cent  of  all  business  men  are  honest 
in  their  intention.  It  is  only  when  the  business  man's  craft 
has  drifted  into  currents  beyond  control,  and  insolvency 
threatens,  that  his  instinct  of  self-preservation  gets  the  upper 
hand. 


m 


J 


The  Regular  Use  of  Drafts 

A  jobber  in  a  different  line  carrying  fifty  thousand  live 
accounts  on  terms  of  2-10,  net  60,  invariably  employs  a  draft 
following  the  monthly  statement.  The  statement  bears  on  its 
face  a  notice  that  the  draft  will  be  sent.  The  draft  comes 
up  in  a  tickler  file  in  a  week's  time,  and  is  sent  to  the  book- 
keeper, who  issues  a  notice  to  the  customer  and  ten  days 
thereafter  forwards  the  notice  to  the  bank  together  with 
notice  to  the  customer  of  the  step  that  has  been  taken.  If 
the  draft  is  refused  the  credit  man  assumes  charge  of  the  nego- 
tiation at  once.  As  an  emergency  plan  in  dealing  with  a 
customer  who  will  not  answer  letters  or  telegrams,  the  credit 
man  writes  that  he  is  willing  to  wait  if  the  customer  will 
accept  the  enclosed  note,  but  he  warns  the  debtor  that  if  the 
note  or  a  remittance  does  not  come  he  will  draw  immediately 
and  will  follow  unhesitatingly  with  suit. 


TYPICAL   PROCEDURE  ANALYZED 


235 


A  "Red  Ink"  Statement 

A  Middle  Western  jobber  doing  a  large  business  with 
country  merchants  issues  a  statement  when  the  bill  is  due  on 
which  are  clearly  printed  the  terms,  net  sixty  days.  Ten 
days  later  another  statement  is  issued  on  which  is  printed 
a  reminder,  courteously  phrased,  assuming  that  no  doubt  the 
account  has  escaped  the  customer's  attention.  Ten  days  later 
another  statement  is  issued  on  which  is  printed  in  red  ink  a 
courteous  but  urgent  reminder  asking  why  the  bill  has  not  been 
paid.  The  impersonal  nature  of  the  printed  letter  prevents  it 
from  giving  offense,  but  the  language  employed  and  the  color 
of  the  ink  bring  it  strongly  to  the  careless  debtor's  attention. 
When  the  account  is  thirty  days  overdue,  the  credit  man  writes 
a  letter  designed  to  get  a  reply. 

Procedure  of  a  Mail-Order  House 

A  house  doing  business  by  mail  and  allowing  examination 
of  its  goods  sends  an  invoice  with  the  goods  and  15  days 
after  a  blue  invoice  with  a  sticker  attached  calling  attention 
to  its  terms.  After  30  days  it  sends  a  pink  invoice,  a  dupli- 
cate of  the  preceding  one,  with  a  different  sticker.  Fifteen 
days  later  it  sends  out  a  statement  with  a  simple  letter  con- 
taining an  interesting  sentence  reselling  the  goods.  Fifteen 
days  later  another  letter  follows  with  a  statement;  this  one 
makes  some  specific  appeal  to  pride,  good-will,  etc.,  with  a 
hint  that  further  measures  will  be  taken.  Following  this  in 
some  instances,  a  "general  manager"  letter  is  sent  offering 
leniency  (see  page  216)  and  giving  the  customer  every  op- 
portunity to  reply.  This  is  very  effective  in  securing  an 
answer,  oftentimes  revealing  some  dissatisfaction  with  the 
merchandise  which  can  be  straightened  out  in  diplomatic 
correspondence.  By  this  time  nearly  all  accounts  have  been 
cleared  up.  But  as  they  are  not  charged  off  the  books  for 
ninety   to   one    hundred    and   twenty   days,    the    remaining 


236 


NEW   COLLECTION   METHODS 


TYPICAL   PROCEDURE  ANALYZED 


237 


1 : 


interval  is  utilized  in  communicating  with  the  buyer's  reference. 
This  letter  goes  direct  to  the  reference  given  by  the  cus- 
tomer when  he  ordered  the  goods — who  is  frequently  the 
customer's  employer.  He  is  informed  that  there  is  apparently 
some  difficulty  with  the  account,  and  is  asked  if  he  can 
supply  information  which  will  be  of  service.  Needless  to 
say,  the  letter  is  extremely  courteous.  This  brings  in  forty 
per  cent  of  the  small  number  of  accounts  still  outstanding— 
surely  a  notable  success.  But  if  no  replies  are  received,  the 
customer  is  warned  that  his  account  will  be  handed  to  an 
attorney.  After  another  interval  the  attorney  receives  the 
papers  designed  to  reach  him  on  a  date  set  in  the  letter  to 
the  customer.     He  waits  three  days ;  then  proceeds  to  collect. 

A  Manufacturer's  Procedure 

The  manufacturer  of  vacuum  cleaners,  whose  "general 
manager"  letter  was  quoted  on  page  216,  before  reaching 
this  letter  sends  a  series  of  five  communications  to  the  delin- 
quent retailer. 

The  first  letter  asks  definitely  for  a  check  and  assumes  an 
oversight. 

Dear  Sir: 

Will  you  kindly  let  us  have  your  check  for  $ some  time 

before  the   ? 

This  account  is  now  somewhat  past  due.  We  believe  it  must 
have  escaped  your  attention  and  we  hope  you  will  let  us  have  your 
remittance  promptly. 

Yours  very  truly, 

The  second  letter  assumes  that  the  letter  has  not  been 
received  and  appeals  to  pride. 

Dear  Sir: 

Perhaps  you  did  not  get  our  recent  letter  calling  your  atten- 
tion to  your  account  of  $ If,   for  any  reason,  this  is  not 

due,  will  you  please  let  us  know.     According  to  our  records,  pay- 
ment is  somewhat  past  due.     We  are  sure  that  you  are  as  desirous 


of  keeping  all  obligations  up  to  date  as  ourselves,  and  will  give  the 
matter  your  immediate  attention. 

Let  us  thank  you  in  advance  for  your  reply,  which  we  are  con- 
fident will  contain  a  check. 

Yours  very  truly. 

The  third  letter  is  a  little  more  insistent  and  appeals  to 
the  desire  of  the  debtor  to  avoid  annoyance. 

Dear  Sir: 

You  must  have  overlooked  answering  our  recent  letter,  regard- 
ing your  account  of  $ You  do  not  wish  to  be  annoyed,  nor 

do  we  desire  to  be  insistent,  regarding  payment. 

Surely  you  will  agree  that  we  are,  at  least,  entitled  to  a  word 
from  you,  and  if  there  is  any  reason  why  full  payment  cannot  be 
made,  or  is  not  due,  just  let  us  know.    As  your  machine  was  shipped 

from  our   factory   on    ,   we   certainly   are  entitled   to  your 

prompt  answer,  and  we  believe  to  your  check  also,  for  which  we 
will  look. 

Yours  very  truly. 

At  this  stage  the  company  decides  to  make  a  definite 
attempt  to  resell  the  goods,  believing  that  it  is  now  too  late 
to  rely  primarily  on  the  power  of  habit. 

The  fourth  letter,  consequently,  appeals  to  self-interest, 
as  well  as  to  pride  and  the  desire  to  avoid  annoyance. 

Dear  Sir: 

It  was  a  pleasure  for  us  to  fill  your  good  order  for 

cleaners.  We  knew  you  were  buying  something  with  which  you 
would  be  more  than  pleased  after  each  day  of  use,  as  we  were 
glad  to  number  you  among  our  many  satisfied  customers. 

It  never  occurred  to  us  that  we  should  be  obliged  to  write  you 
three  letters,  this  being  the  fourth,  regarding  the  payment  of  our 
invoice,  amounting  to  $ ,  without  receiving  a  reply  from  you. 

We  feel  that  this  surely  must  have  been  overlooked  in  the  rush 
of  other  business.  If  you  mail  your  check  today  you  will  have  it 
off  your  mind  and  we  shall  not  have  to  bother  you  again. 

Yours  very  truly. 

The  fifth  letter  relies  on  the  appeal  to  pride  involved  in 
the  assumption  that  a  subordinate  has  been  guilty  of  the 


238 


NEW  COLLECTION  METHODS 


I 


^1 


failure  to  pay  and  that  his  superior  officer  will  correct  the 
oversight. 

Dear  Sir: 

On  referring  to  our  records,  we  find  that  we  have  written  you  no 
fewer  than  four  letters,  this  being  the  fifth,  in  connection  with  your 
account  with  us  to  the  amount  of  $ 

We  believe  that  the  matter  has  not  been  brought  to  the  atten- 
tion of  the  proper  authorities  in  your  company,  and  we  would  ask 
you  to  be  good  enough  to  give  this  bill  final  consideration  at  once  It 
seems  impossible  to  believe  that  any  firm  would  be  so  lax  as  to 
allow  four  letters  to  pass  without  reply,  and  we  feel  confident  that 
this  is  caused  by  the  failure  on  the  part  of  some  clerk  to  deliver  the 
letters  into  proper  hands. 

The  amount  due,  for  which  we  enclose  a  statement,  is  $ 

Yours  very  truly. 

The  "general  manager"  letter  and  a  letter  bearing  the 
letterhead  of  their  own  collection  agency  completes  the  series 
employed  by  this  company  before  the  account  is  sent  to  a 
local  attorney. 

Canadian  Collection  by  Bank  Draft 

As  is  indicated  above,  the  tendency  of  many  houses  in 
connection  with  drafts  is  to  accompany  them  by  a  letter 
which  makes  the  delinquent  debtor  feel  the  urgency  of  the 
step.  In  Canada,  on  the  other  hand,  drafts  carry  no  such 
implication.  A  New  York  manufacturer  handles  nearly  all 
his  Canadian  collections  by  draft,  sending  the  bank  a  multi- 
graphed  form  which  reads,  '^Accept  our  thanks  for  your 
prompt  attention  to  the  enclosed  draft.  Please  make  return 
direct  to  us  in  New  York  Exchange— your  usual  collection 
charge."  A  place  is  left  for  the  name  of  the  customer,  his 
city  and  province,  and  amounts  due. 

Another  form  sent  to  the  customer  reads,  "We  are  today 

drawing  for  our  invoice  dated through  the 

We  hope  this  will  be  satisfactory  to  you.     Please  honor  draft 
on  presentation." 


TYPICAL   PROCEDURE  ANALYZED 


239 


A  third  form  is  sent  to  the  bank  in  case  no  reply  is 
received  by  a  certain  date.  "Our  draft  (or  acceptance)  has 
not  according  to  our  records  been  accepted.  Will  you  please 
give  it  your  early  attention  returning  draft  to  us  at  once  in 
case  the  customer  will  not  honor." 

Procedure  of  a  Specialty  Manufacturer 

A  firm  of  national  reputation,  located  in  New  York  City, 
manufactures  a  specialty  article  dealt  in  by  a  great  variety 
of  retailers.  Accounts  are  small  and  are  handled  in  large 
volume.  The  manager  makes  use  of  novel  and  varied 
phrases  as  a  means  of  getting  attention  for  his  collection 
letters. 

One  of  his  letters  appeals  to  pride  and  good- will  in  the 
following  frank  language: 

Dear  Sir: 

Most  collection  letters  have  a  tendency  to  preach  promptness 
and  its  allied  virtues.     It's  rather  hard  to  get  away  from. 

To  be  frank,  we  were  racking  our  brains  for  some  new  way 
to  put  this  idea  across  when  it  occurred  to  us  you  would  respond 
to  a  straight-from-the-shoulder  request  for  payment.     So  here  it  is. 

Your  account  shows  $ due.     Let  us  have  your  check  by 

return  mail  and  we'll  be  much  obliged. 

Very  truly  yours. 

Credit  &  Collection  Department 

Another  letter  "out-guesses"  the  customer  by  telling  what 
is  probably  passing  in  his  mind.  It  also  makes  an  appeal  to 
fair  play  and  resells  credit. 

Dear  Sir: 

You  have  probably  received  our  several  letters  with  reference 
to  your  overdue  account.  That  a  reply  has  not  been  received  has 
been  undoubtedly  due  to  an  oversight  or  conditions  over  which  you 
have  had  no  control.  Perhaps  you  have  been  waiting  until  you 
could  make  remittance  of  the  entire  amount. 

Meanwhile  we  have  been  wondering  just  why  payment  has  not 
been  received.     Put  yourself  in  our  place.     If  you  had  a  customer 


240 


NEW    COLLECTION   METHODS 


TYPICAL   PROCEDURE  ANALYZED 


I 


who  persistently  ignored  your  letters  wouldn't  you  begin  to  consider 
taking  some  definite  action  which  would  uncover  his  reasons  ? 

In  view  of  our  past  liberality  in  the  granting  of  this  credit, 
business  courtesy  entitles  us  to  a  remittance  or  explanation  by  re- 
turn mail. 

Don't  bother  to  write  a  letter.  Attach  your  check  to  this  letter 
and  use  the  enclosed  envelope. 

Very  truly  yours, 
Credit  &  Collection  Department 

At  the  point  where  the  account  is  to  pass  into  the  hands  of 
the  controller,  the  following  appeal  to  fair  play  is  used, 
coupled  with  a  hint  of  severity. 

Dear  Sir: 

At  heart  most  men  are  fair  and  try  to  maintain  a  reputation 
for  fair  dealing. 

We  are  willing  to  make  allowance  for  unusual  circumstances 
but  how  are  we  to  do  that  if  we  don't  know  them? 

To  afford  every  opportunity  for  our  customers  to  place  us  in 
touch  with  their  reasons  for  non-payment  our  controller  has  re- 
quested us  to  refer  all  delinquent  accounts  to  him. 

If  we  fail  to  hear  from  you  in  seven  days  your  account  will  be 
referred  to  our  controller. 

Very  truly  yours. 

Credit  &  Collection  Department 

A  different  letter,  which  may  be  used  at  the  same  time  as 
the  preceding,  begins  by  reselling  the  credit  privilege. 
Dear  Sir: 

When  we  shipped  you  the  goods  represented  by  your  present  ac- 
count, we  expressed  our  confidence  in  your  willingness  and  your  ability 
to  pay  for  them  on  regular  terms. 

That  you  have  not  done  so  in  spite  of  our  reminders  is  a  dis- 
appointment--particularly  as  we  have  had  no  information  from  you 
concerning  the  circumstances  which  make  your  present  delinquency 
necessary.  We  are  entitled  to  either  a  remittance  or  an  ekplan- 
ation  by  return  mail.  ^ 

r.f  JJ'a  ,^''"^"°"^"   ^^'   requested   that   all   delinquent   accounts   be 

Ia'    I       ?  u'T  """  / ^^  ^°P^  y^"  wi"  '"ake  the  necessary 

adjustment  before  that  time.  ^caaary 

Very  truly  yours, 
[Signed  by  the  firm.] 


241 


The  next  letter  is  from  the  controller  and  is  an  adaptation 
of  the  "general  manager"  letter  so  frequently  referred  to  in 
this  book. 

Dear  Sir: 

The  manager  of  our  Credit  and  Collection  Department  this 
morning  laid  on  my  desk  a  dozen  or  so  accounts  which  are  long 
overdue  and  which  he  has  attempted  to  collect  by  adopting  liberal 
and  lenient  methods. 

It  being  the  practice  of  our  house  to  extend  every  possible 
courtesy  to  our  trade,  our  Collection  Department  is  working  under 
restriction,  which  prohibits  taking  drastic  steps  in  the  collection 
of  a  stray  delinquent  account.  For  that  reason,  these  matters  come 
to  this  office  to  be  passed  upon. 
•      Now,  however,  I  find  that  your  attention  has  several  times  been 

called  to  a  matter  of  $ which  has  been  standing  on  the  books 

against  your  account  longer  than  it  should.  Since  our  letters  have 
not  been  successful  in  disposing  of  this  item,  I  feel  that  we  will 
be  justified  in  refraining  fromi  further  correspondence  and  in  pro- 
ceeding in  the  usual  manner  to  collect  your  account. 

This,  I  think,  we  ought  to  do  unless  we  hear  from  you  within 
the  next  week  or  ten  days.  Provided  some  word  does  not  come 
from  you  in  the  meantime,  I  have  instructed  Mr.  Ashe  to  proceed 
along  these  lines  on  

Very  truly  yours. 


Controller 

The  following  is  also  a  "controller"  letter  employing 
several  interesting  features.  It  begins  with  a  story  which 
shows  how  lenient  the  creditor  is — ^and  desires  to  be.  It  goes 
on  to  ask  the  debtor  to  classify  himself  and  concludes  by 
offering  temporary  leniency. 

Dear  Sir: 

The  other  evening  after  dinner  I  dropped  into  a  "movie"  theater 
and  saw  a  picture  which  to  me  was  very  interesting.  It  depicted 
the  difference  between  a  doctor  who  is  guided  wholly  by  scientific 
practice  and  one  who  is  scientific—but  also  human. 

I  thought  of  that  film  when  Mr.  Ashe,  our  credit  manager 
brought  in  two  or  three  accounts  to  me  this  morning— of  which 
yours  was  one— saying  that  they  were  delinquent  and  he  was  ready 


w 


242 


NEW   COLLECTION   METHODS 


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to  proceed  in  the  usual  manner  to  collect  them.  There  is  a  scien- 
tific and  hard-and-fast  way  in  which  to  collect  such  accounts. 
But  we  like  to  be  human  about  these  things. 

Usually  there  are  three  reasons  why  an  account  is  not  paid 
when  it  is  due.  The  man  who  owes  the  account  happens  to  be  short 
of  cash,  or  he  or  his  employees  neglect  it,  or  he  intentionally  lets 
it  slide  because  by  nature  he  is  opposed  to  paying  his  bills  when 
they  ought  to  be  paid. 

The  great  majority  of  cases  belong  in  the  second  class. 

Many  also  belong  in  the  first  class,  although  just  now  most 
every  dealer  is  well  supplied  with  funds  or  should  be.  Certainly 
business  has  never  been  any  better  in  the  history  of  the  country. 

Only  a  very  few  belong  in  the  third  class  and  these  we  soon 
discover. 

Doubtless  you  have  overlooked  the  account  we  have  standing 
on  our  books  against  you,  although,  frankly,  it  seems  a  little  bit 
hard  to  understand  why  you  should  not  have  replied  to  our  letters 
on  the  subject.  Certainly  there  can  be  no  excuse  for  neglecting 
the  matter  after  you  receive  this  letter. 

I  have,  therefore,  asked  that  the  customary  action  on  your  ac- 
count be  withheld  for  another  week,  feeling  sure  that  now  that 
it  has  been  called  to  your  attention  in  this  special  way  you  will  take 
care  of  it  immediately. 

Very  truly  yours, 


Controller 


CHAPTER    XXIII 

WAR  TIME  COLLECTION  PROCEDURE 

Meeting  Strenuous  Conditions 

Is  it  your  problem  to  get  an  answer  to  your  collection 
letters?  Under  the  stress  of  war  conditions,  many  customers 
are  simply  neglecting  the  usual  communications  from  the 
credit  and  collection  department  of  their  manufacturers  and 
wholesalers;  believing  that  the  plight  into  which  difficult 
business  conditions  have  flung  them  is  so  well  understood 
that  they  will  not  be  penalized  for  neglecting  their  business 
obligations. 

The  danger  of  such  an  attitude  is  twofold:  it  demoralizes 
credit  conditions  throughout  the  business  world,  and  it  de- 
stroys the  morale  of  the  dealers  themselves,  who,  instead 
of  putting  up  a  stiff  fight  to  maintain  efficiency  and  pay  their 
bills,  grow  slack  in  their  efforts  and  blame  "conditions"  for 
the  ruin  they  themselves  might  have  prevented. 

A  Toronto  firm,  White  Swan  Spices  and  Cereals,  Ltd.,  has 
tightened  up  on  every  point  in  its  procedure  to  help  in  meeting 
the  severe  conditions  existing  in  the  Canadian  field.  A  num- 
ber of  its  form  letters  are  reproduced  on  the  following  pages. 
They  illustrate  the  systematic  and  resourceful  attacks  made 
by  this  firm  upon  its  problems.  Their  language  is  fresh 
and  unhackneyed  and  unfailingly  courteous,  but  their  earnest 
tone  and  their  skilful  use  of  appeals  to  fair  play,  pride,  good- 
will, self-interest,  etc.,  cannot  help  but  bring  his  obligations 
seriously  to  the  mind  of  the  man  who  reads  them.  It  is  fair 
to  suppose  that  a  firm  which  uses  such  methods  as  these  will 
reap  a  better  harvest  than  the  one  which  merely  exerts  an 

243 


i  J 


244 


NEW   COLLECTION   METHODS 


WAR   TIME   COLLECTION    PROCEDURE 


245 


■  I 

1  * 


unreasoning  pressure ;  it  will  get  the  money,  retain  good-will, 
and  more  important  than  either,  prevent  hopelessness  and 
panic  on  the  part  of  customers. 

The  First  Letter 

This  communication  manages  to  transform  the  usual  re- 
quest, "If  you  find  goods  satisfactory,  please  remit  by  return 
mail,"  into  a  sincere  inquiry  that  brings  a  reply  even  if  the 
merchant  cannot  at  once  pay  in  full. 

Dear  Sir: 

If  there  is  any  cause  for  complaint  with  shipment  covered  by  the 

enclosed  statement  of  account  amoimting  to  $ we  would  very 

much  appreciate  your  writing  us  by  return  mail  and  affording  us 
the  opportunity  of  making  immediate  adjustment. 

We  never  consider  a  sale  complete  Until  the  customer  is  en- 
tirely satisfied,  and  if  there  is  any  fault  in  our  service  we  consider 
it  a  favor  to  be  told  about  it. 

The  account  is  somewhat  overdue,  and  if  it  is  entirely  correct 
we  would  appreciate  a  remittance  by  return  mail. 

Yours  truly, 

■ 

The  Second  Letter 

One  way  of  getting  a  reply  is  to  hold  up  orders.  The 
letter  issued  in  this  case  takes  the  apparently  innocent  stand 
that  something  must  surely  have  been  wrong  with  the  pre- 
ceding shipment,  or  payment  would  have  been  received;  ac- 
cordingly, the  company  is  quite  unwilling  to  ship  another 
order  until  the  former  difficulty  has  been  adjusted  to  the  cus- 
tomer's satisfaction.  The  innocent  subterfuge  is  doubtless 
transparent  to  the  merchant  who  gets  the  letter,  but  it  saves 
his  pride  and  gives  him  a  chance  to  remit  promptly. 

Dear  Sir: 

We  have  received  your  order  through  our  Mr 

but  as  it  is  evident  that  there  is  something  wrong  with  your  account 
we  are  holding  this  up  until  we  hear  from  you,  the  idea  being  that 
whatever  the  trouble  is  it  may  be  possible  to  adjust  it  in  this  next 
shipment. 


Is  there  anything  wrong  with  your  account?  An  overcharge — 
or  a  shortage?    There  must  be  some  reason  why  you  have  been 

holding  back  payment   for    purchases,   and  if  you  will 

be  good  enough  to  let  us  hear  from  you  immediately  in  reply  we 
can  then  adjust  the  account  if  there  is  anything  wrong. 

If  this  is  just  an  oversight  on  your  part  please  let  us  have  a 
remittance  for  it  according  to  the  statement  enclosed.  The  account 
will  then  be  cleaned  up  and  shipment  can  go  forward  without  further 
notice. 

Yours  very  truly, 

Further  Correspondence 

If  the  account  is  so  far  overdue  that  the  customer's  de- 
lay can  be  attributed  to  his  shortage  of  cash,  the  next  letter 
makes  it  clear  that  the  house  appreciates  this  situation  but  in 
fairness  desires  that  the  extension  be  definitely  arranged  for. 
The  trade  acceptance  is  not  at  this  writing  the  general 
practice  in  Canada,  but  it  is  used  to  some  extent.  When  one 
is  dishonored  a  courteous  letter  assuming  oversight  is  written, 
and  a  sight  draft  is  issued.  This  company's  methods  of  in- 
suring attention  to  its  drafts  were  explained  on  pages  213-215. 

When  Drafts  Are  Not  Paid 

The  dishonoring  of  a  second  draft  is  made  the  occasion 
of  the  following  letter: 

Dear  Sir: 

If   there   is   anything  wrong  with   our   invoice   of    

amounting  to  $ we  are  anxious  to  hear  of  it  and  make  im- 
mediate adjustment. 

We  wrote  you  some  days  ago  in  regard  to  this  matter,  and  our 
second  draft  has  been  returned  without  any  reason  being  given. 

Please  let  us  hear  from  you. 

Yours  very  truly. 

When  Acceptance  Is  Not  Accepted 

If  an  acceptance  is  refused,  another  draft  is  immediately 
drawn;  but  if  this  too  is  dishonored,  the  situation  is  treated 


246 


NEW   COLLECTION   METHODS 


l^ 


in  the  same  way  as  when  an  extension  is  desired.  Since  the 
customer  in  this  case  is  not  so  good  a  credit  risk,  he  is  asked 
to  meet  a  sight  draft,  and  if  this  is  not  possible,  to  give  his 
note  for  half  of  it 

Dear  Sir: 

Your  acceptance  for  $ which  fell  due  on  ......  has  been 

returned  to  us  dishonored. 

This  is  the  second  acceptance  which  has  been  returned  cover- 
ing this  account  which  is  now  considerably  overdue,  and  you  will 
appreciate  the  fact  that  some  definite  arrangement  of  settlement 
must  be  made  at  once. 

We  are  anxious  to  assist  you  in  any  way  reasonable,  and  if  you 
are  unable  to  pay  the  draft  which  we  are  now  drawing,  pay  half 
of  it  at  the  bank  and  attach  your  note  at  15  days  for  the  balance. 

We  believe  it  is  your  desire  to  meet  us  fairly  and  thank  you 
in  anticipation  for  immediate  attention  to  the  matter. 

Yours  very  truly. 

Suggesting  Resort  to  Law 

The  threat  of  an  attorney  following  the  dishonoring  of 
draft  is  made  the  occasion,  not  of  a  harsh  letter,  but  of  an 
appeal  to  fairness  and  offers  of  leniency  provided  an  arrange- 
ment is  made. 

Dear  Sir: 

We  have  drawn  on  you  several  times  for  the  amount  of  our 
account  but  each  time  our  draft  has  been  returned  without  a  sat- 
isfactory explanation. 

It  is  our  desire  to  act  with  entire  fairness  concerning  your 
account  and  we  are  sorry  you  have  not  met  us  in  the  same  spirit. 
In  the  ordinary  course  your  account,  being  so  much  overdue,  would  be 
handed  to  our  lawyer  without  further  delay.  We  feel  sure  that  in 
your  case  there  must  be  some  reason  we  do  not  know  of,  and  if 
this  is  the  case  you  ought  in  justice  to  yourself  to  write  us  by  re- 
turn mail. 

As  is  our  usual  custom  we  have  drawn  on  you  several  times 
for  the  amount  of  our  account,,  which  is  now  long  past  due.  But, 
you  have  allowed  these  drafts  to  come  back  without  a  satisfactory 
explanation    or   a   remittance.     This   matter    cannot   be   neglected 


WAR  TIME  COLLECTION  PROCEDURE 


247 


longer.    Unless  we  receive  payment  by  the we  shall  feel 

obliged  to  hand  this  matter  over  to  our  lawyer  with  instructions 
to  collect  by  whatever  means  he  considers  necessary. 

Yours  very  truly, 

Another  "Last  Chance"  Letter 

Still  another  "last  chance"  letter  is  employed  with  cus- 
tomers whose  conditions  seem  to  warrant  it. 

Dear  Sir: 

Several  letters  have  been  mailed  you  concerning  your  account  of 
$ but  you  have  not  favored  us  with  a  reply. 

Our  records  show  $ to  be  the  correct  amount  of  this 

account  and  as  you  have  not  disputed  it,  nor  given  us  a  reason 
for  the  non-payment,  we  are  at  a  loss  to  understand  the  delay  in 
receiving  settlement. 

There  is  nothing  we  dislike  more  than  being  forced  to  collect 
our  accounts  in  an  unpleasant  manner.  We  hope  you  won't  mtike 
this  necessary. 

Please  remit  by  return  mail. 

Yours  very  truly. 

Or  a  still  milder  letter  may  be  used  at  this  jimcture. 

Dear  Sir: 

We  have  endeavored  to  make  it  quite  clear  in  the  letters  we 
have  written  you  that  ft  is  our  desire  to  act  with  entire  fairness 
concerning  your  account  of  $ as  shown  on  the  enclosed  state- 
ment, and- we  are  sorry  you  have  not  met  us  in  the  same  spirit 

In  the  ordinary  course  your  account,  being  much  overdue,  would 
have  been  handed  to  our  lawyer  without  further  delay.  But  we 
feel  sure  that  in  your  case  there  must  be  some  reason  that  we  do 
not  know  of,  and  if  this  is  so  you  ought  in  justice  to  yourself  to 
write  us  by  return  mail. 

Yours  very  truly, 

The  Ultimatum 

The  final  step  of  draft  followed  by  an  attorney  is  an- 
nounced in  a  letter  which  still  shows  the  spirit  of  fairness 
and  expresses  regret  at  the  necessary  severity  of  the  step. 


Hif' 


fl 


t 


^1' 


248  NEW  COLLECTION   METHODS 

Dear  Sir: 

We  have  endeavored  by  several  means  to  arrange  amicable  settle- 
ment of  your  account  which  is  long  past  due  and  regret  that  you  have 
shown  no  inclination  to  settle  in  that  manner. 

We  now  enclose  copy  of  draft  which  was  today  handed  to  our 
Bank  for  collection  with  instructions  if  not  paid  to  hand  to  solic- 
itors named  therein  who  will  proceed  to  collect  with  all  possible 
dispatch. 

In  order  to  avoid  further  expenses  and  publicity  it  will  be  neces- 
sary for  you  to  arrange  immediate  payment  of  this  draft 

Yours  truly. 


CHAPTER    XXIV 

COLLECTION  PROCEDURE— WHOLESALE  HOUSE 

A  Wholesaler's  Form-Letter  Book 

Handling  an  enormous  number  of  comparatively  small 
accounts  and  dealing  with  customers  who  order  even  several 
times  a  day,  a  certain  wholesale  house  in  New  York  City  has 
prepared  a  book  of  form  letters,  a  copy  of  which  is  in  the 
possession  of  the  credit  manager  and  of  the  typist  who 
handles  this  special  correspondence.  When  provided  with 
the  index  number  of  the  letter  desired  and  with  the  figures  to 
be  inserted,  the  typist  rapidly  prepares  the  letters  each  day 
for  the  credit  manager's  signature. 

The  best  possible  explanation  of  the  system  is  given  by  a 
glance  at  the  index  of  this  book.  As  will  be  noted  it  covers 
such  matters  as  the  regular  series  to  the  delinquent  customer, 
special  letters  on  short-term  goods,  small  bills,  part  payments, 
references,  extensions,  checks  returned,  discount,  etc. 

A  Straight  Request  for  Money 

A-I        First  letter  after  second  statement. 
A-2        Second  letter  after  second  statement. 
A-3        Third  letter,  which  intimates  that  we  shall  place  the  ac- 
count with  attorney  if  not  paid. 

B-i        First    request    on    bill — special    short    terms — 

to  be  followed  by  regular  collection  letters. 

C-i  First  request  on  unpaid  bill  for  prepaid  freight,  to  be 
followed  by  regular  forms  for  small  amounts. 

D  Small  Bills 

D-i  First  request  for  payment  of  small  bill  after  second  state- 
ment. 

D-2  Second  request  for  payment  of  small  bill  after  second 
statement. 

249 


mi 


I 


™^| 


250 

E 

E-i 

E-2 

E-3 

F 
F-i 

F-3 


G 

G-i 


G-3 

G-4 

G-5 

G-^ 

H 

H-i 

H-2 

H-2K 

H-3 
J 

J-3 


NEW  COLLECTION  METHODS 

Small  Balances 

First  request  for  payment  of  small  balance  after  second 

statement. 
Second  request  for  payment  of  small  balance  after  second 

statement. 
Third  request  for  payment  of  small  balance  after  second 

statement. 

Payment  on  Account 

Extending    thanks    for    previous    payment    already    made 

on  account,  and  asking  for  balance. 
Acknowledging  receipt  of  payment  on  account  and  letter, 

and   expressing   regret   that   his   payment   did   not   pay 

the  entire  account. 
Acknowledging  payment  that  has  been  made  on  account 

after  an  attorney  letter  has  been  sent. 

Outside  and  Reference  Forms 

Request  for  information  from  the  Trade  Pro- 
tective Association,  and  request  to  be  enclosed  with  our 
letter. 

First  letter  written  by  Southern  Association  of  Credit 
Men. 

Second  letter  written  by  Southern  Association  of  Credit 

Men. 
First   letter   written   by   Northern   Association   of   Credit 

Men. 

Second  letter  written  by  Northern  Association  of  Credit 

Men. 
Letter  written  by Mercantile  Agencies. 

Extensions 

Acknowledging  payment  on  account  and  complying  with 

the  request  for  a  specified  extension  on  the  balance. 
Granting   extension    up   to    a   specified    time,    suggesting 

postdated  check. 
Granting  extension   up   to   a    specified   time,   no   mention 

of  check. 
Where  customer  says  I  will  pay  as  soon  as  possible. 

Payments  Not  Made  in  Accordance  with  Extensions 
Granted 

To  be  used  on  date  extension   expires. 

To  be  used  five  days  or  more  after  extension  has  expired. 

Customer  has  not  lived  up  to  his  agreement  to  pay  weekly. 


WHOLESALE  HOUSE 


351 


K  Checks  Returned  Unpaid 

K-i         First  letter. 

K-2        No  fees. 

K-3        Second  letter. 

K-4        Has  made  good  on  check,  but  has  not  sent  the  protest 

fees. 
K-5        Check  has  been  made  good  in  full.     Returning  check  to 

customer. 
K-6        Check  returned  to  customer  not  signed. 
K-7        Check    returned    to    customer,    not    made    out    properly, 

difference  between  body  and  figures. 
K-8        Check  returned  for  endorsement. 
K-9        Check  returned,  intended  for  someone  else. 

L  C.  O.  D.'s 

I^i        We  have  received  notice  that  draft  has  not  been  accepted. 

h-2        Draft  and  bill  of  lading  have  been  returned  to  us. 

M  Excessive  Deductions  for  Discount 

M-i         Check  returned  for  correction,  deducts  2%,  not  entitled 

to  any. 
M-2        Check   returned   for   correction,   deducts   2%,   entitled  to 

1%. 
M-3        Check  returned  for  correction,  deducts  1%,  not  entitled 

to  any. 

M-4        Check  accepted.    Deducts  2%,  not  entitled  to  any. 

M-5        Check   accepted.     Deducts   2%,   entitled  to    1%. 

M-6        Check  accepted.     Deducts  1%,  not  entitled  to  any. 

M-7  Check  accepted,  discount  allowed.  Deducts  2^,  not  en- 
titled to  any. 

M-8  Check  accepted,  discount  allowed.  Deducts  2%,  entitled 
to  1%. 

M-9  Check  accepted,  discount  allowed.  Deducts  1%,  not  en- 
titled to  any. 

O  Letters  to  Claim   Department 

P  Instructions  to  Recall  C.  O.  D.  Shipment,  Enclosing 

Original  Bill  of  Lading 

Some  of  the  foregoing  letters,  for  instance  A-i  and  A-2 
require  constant  revision  and  variety.  Others  such  as  A-3 — 
which  threatens  an  attorney— can  be  maintained  without 
change  as  they  are  almost  never  sent  to  the  same  customer 
twice.     In  every  instance,  save  one,  the  letters  arc  individually 


iH 


II 


I 


i 


252 


NEW   COLLECTION   METHODS 


typed.  The  single  exception  is  the  first  of  the  regular  series, 
which  is  a  courteous,  multigraphed  form,  purposely  given  an 
impersonal  quality. 

Certain  unusually  interesting  letters  from  the  series  are 
the  following: 

A-3.    Third  letter  threatening  legal  action: 

Dear  Sir: 

You  have  been  reminded  several  times  of  your  overdue  account 

on  our  books  amounting  to  $ We  have  tried  to  point  out  to 

you  in  a  very  courteous  manner  the  importance  of  settling  this 
account,  but  for  some  reason  unknown  to  us,  you  have  failed  to  remit. 

We  aim  to  play  fair  and  from  all  that  I  can  gather  from  the 
records  it  appears  we  have  been  patient  to  a  fault  in  waiting  for  your 
check.  Now  I  must  say  to  you  very  frankly  and  yet  in  all  friendliness 
that  this  is  the  last  letter  that  we  shall  write  to  you  asking  for  pay- 
ment of  this  account. 

Of  course,  you  know  that  there  are  methods  of  collection  open 
to  us,  which  although  distasteful  we  shall  not  hesitate  to  adopt  if 
necessary.  I  earnestly  hope  you  will  realize  that  it  would  be  a 
serious  matter  for  you  to  jeopardize  your  credit  standing  by  further 
postponement  of  this  settlement. 

A  copy  of  this  letter  will  be  held  as  a  memorandum  in  my  per- 
sonal file  until  (6  days)  which  will  give  you  ample  time  to  get  your 
check  here.    Let  me  urge  you  to  send  it  off  today. 

Yours  very  truly, 

C-i.    First  request  on  unpaid  bill  for  prepaid  freight:  . 

Dear  Sir: 

It  is  indeed  a  great  surprise  to  learn  that  the  charge  against 

you   of  $ representing  freight  prepaid  on   shipment  is  still 

unpaid. 

This  amount  was  paid  out  by  us  in  cash  as  an  accommodation, 
and  as  there  is  no  profit  on  that  amount,  such  items  are  due  im- 
mediately when  presented  as  is  specified  on  the  bill  sent  to  you. 

You  have  always  made  payments  in  accordance  with  our  terms, 
but  we  do  not  quite  understand  why  you  failed  to  pay  this  small 
balance. 

Will  you  please  be  so  kind  as  to  let  us  know? 

Yours  very  truly, 


WHOLESALE   HOUSE 


253 


D-i.    First  request  for  payment  of  small  bill: 


Dear  Sir: 

Under  date  of  we  sent  you  a  second  state- 
ment calling  attention  to  a  small  bill  which  is  now  considerably  past 
due.  Not  hearing  from  you  we  can  only  infer  that  our  requests 
for  a  remittance  have  been  overlooked,  or  that  you  have  some  rea- 
son for  not  paying  this  small  bill. 

In  any  event,  we  would  like  to  hear  from  you,  so  as  to  avoid 
unnecessary  correspondence,  and  the  possibility   of  confusion  later 

on. 

Yours  very  truly, 

D-2.    Second  request  for  payment  of  small  bill: 

Dear  Sir: 

Knowing  that  it  is  the  custom  for  some  merchants  to  hold  over 
small  bills  and  include  the  amount  when  paying  others,  we  think 
it  well  to  explain  that  with  us,  each  and  every  transaction  is  sepa- 
rate and  distinct.  It  is  therefore  a  great  convenience  to  us  to  have 
each  bill  paid  as  it  matures. 

Will  you  please  be  kind  enough  to  send  us  a  check  by  return  mail 

for  the  bill  of  amounting  to  $ ? 

Yours  very  truly, 

E-2.    Second  request  for  payment  of  small  balance: 

Dear  Sir: 

You  will  recollect  that  you  have  received  several  letters  re- 
lating to  a  small  overdue  balance  on  your  account  of  $ 

These  letters  must  be  more  or  less  annoying  to  you,  but  as 
there  appears  to  be  po  explanation  of  non-payment,  it  is  the 
only  means  which  we  can  employ  to  keep  you  reminded  of  the 
condition   of  the   account. 

Undoubtedly,  you  have  some  good  reason  for  not  paying  this 
amount,  and  the  purpose  of  this  letter  is  to  get  some  idea  as  to 
why  you  do  not  pay  it. 

Won't  you  please  explain  on  the  back  of  this  letter? 

Yours  very  truly, 

E-3.    Third  request  for  payment  of  small  balance: 

Dear  Sir: 

In  a  recent  letter  we  very  courteously  asked  why  you  did  not 
pay  us  a  small  balance  of  $ 


l:k 


I 


>  '1 


B 


254 


NEW   COLLECTION   METHODS 


You  must  admit  that  we  have  given  you  every  possible  op- 
portunity to  dispose  of  this  one  way  or  the  other,  hence,  in  view 
of  the  fact  that  you  have  not  done  so,  there  is  nothing  to  do 
but  to  consider  the  debt  a  legitimate  one  and  conduct  ourselves 
accordingly. 

Please  realize  that  it  is  not  only  expensive  to  be  compelled 
to  write  one  every  so  often  on  such  a  small  matter  as  this,  but  it 
really  grieves  us  that  our  efforts  to  adjust  it  apparently  meet  with 
so  little  sympathy  and  lack  of  co-operation. 

Can  we  not  rely  on  you  to  help  us  straighten  this  out? 

Yours  very  truly, 

F-i.  Expressing  thanks  for  payment  on  account  and 
asking  for  balance: 

Dear  Sir: 

An  examination  of  your  account  shows  that  by  your  last  pay- 
ment you  reduced  the  overdue  balance  to  $ 

In  expressing  our  appreciation  of  your  efforts  to  dispose  of  this 
debt,  we  nevertheless  feel  that  inasmuch  as  the  account  is  so  long 
overdue  that  you  should  take  extraordinary  steps  to  close  it  out. 

We  are  genuinely  interested  in  your  success,  and  we  sincerely 
hope  that  on  receipt  of  this  letter  you  will  find  it  convenient  to  re- 
mit the  difference  mentioned  and  thereby  prepare  the  way  for  even 
larger  and  more  profitable  business  dealings  between  us. 

Yours  very  truly, 

F-3.    Acknowledgment  of  payment  after  lawyer's  letter: 

Dear  Sir: 

I  notice  on  referring  to  your  account  this  morning  that  there 
still  remains  a  balance  of  $ ,  although  you  did  make  pay- 
ment of  $ ,  after  our  attorney  had  written  you  in  connec- 
tion with  the  condition  of  your  account. 

Our  lawyer  now  asks  for  instructions  to  proceed  by  suit,  and 
I  do  not  want  to  take  that  step,  if  it  can  be  avoided.  You  must, 
however,  understand  that  for  the  protection  of  our  own  interests, 
it  is  absolutely  necessary  that  payments  be  made  at  maturity,  and, 
failing  to  secure  such  payments  through  our  own  efforts,  we  are 
obliged  to  seek  outside  assistance. 

Legal  action  means  expense  to  you,  but  more  important  than  this 
is  the  fact  that  the  court  records  are  always  available  to  your  other 
creditors,  and  action  through  the  courts  may  result  in  the  curtail- 
ment of  your  credit  in  other  channels. 


WHOLESALE  HOUSE 


255 


Take  it  all  in  all,  this  is  a  very  serious  matter  to  you,  and  I 
hope  that  you  will  prevent  suit,  by  making  full  and  complete  pay- 
ment of  this  difference  by  return  mail. 

Yours  very  truly, 

G-i.    Notifying  of  request  for  credit  information: 

Dear  Sir: 

You  will  notice  from  the  attached  blank  that  your  name  is  the 
subject  of  inquiry  in  the  trade  here. 

We  give  you  this  information  in  confidence,  feeling  that  you 
should  be  given  an  opportunity  to  put  your  account  in  the  proper 
shape  so  that  we  can  consistently  answer  the  inquiry  and  show 
the  account  to  be  in  current  condition. 

May  we  not  have  the  pleasure  of  receiving  your  check  by  re- 
turn mail  and  the  return  of  this  blank? 

Yours  very  truly, 

K-3.   Second  letter  on  unpaid  checks: 

Dear  Sir: 

We  have  already  written  you  regarding  the  check  which  was 
returned  unpaid,  and  we  expected  immediate  payment  and  some  word 
as  to  how  this  happened.     Neither  has  come  to  us. 

It  is  harmful  to  let  checks  go  back,  and  wrong  to  allow  the 
amount  to  remain  unpaid,  but  it  becomes  a  serious  matter  when  no 
explanation  is  made. 

You  owe  it  to  yourself  and  your  business  to  make  good  on  this 
check  and  to  explain  fully. 

We  must  insist  upon  hearing  from  you  by  the > 

(6  days  after  date  of  this  letter). 

Yours  very  truly, 

L-2.    On  return  of  draft  and  bill  of  lading: 

Dear  Sir: 

The  draft  covering  our  recent  shipment  valued  at  $ has 

been  returned  to  us  attached  to  the  B/L,  as  you  did  not  accept  it 
upon  presentation.  We  are  surprised  to  hear  this,  and  would  like 
to  be  informed  as  to  your  reasons  so  that  we  can  make  the  necessary 
arrangement  and  avoid  having  the  goods  go  to  storage. 

As  far  as  we  know,  the  shipment  was  made  promptly  and  in 


.     7    I 


256 


NEW   COLLECTION   METHODS 


accordance  with  your  instructions,  and  naturally  we  expect  you  to 
live  up  to  your  end  of  the  agreement. 

We  would  be  pleased  to  hear  from  you,  and  suggest  that  you 
attach  this  letter  to  your  answer,  as  that  will  bring  it  to  the  writer 
and  avoid  the  possibility  of  a  misunderstanding. 

Yours  very  truly. 


\ 


^.^(' 


CHAPTER    XXV 

COLLECTION    PROCEDURE— A    FORM-LETTER 

SERIES 

Using  Multigraph  Form  Letters 

The  credit  and  collection  department  of  a  manufacturing 
corporation  with  branches,  agencies,  and  dealers  all  over  this 
continent,  has  in  stock  no  fewer  than  fifty  multigraphed  form 
letters.  Its  policy  in  regard  to  their  use  is  as  interesting  as 
the  letters  themselves.  A  selection  from  the  letters  is  pre- 
sented as  a  final  exhibit  on  this  subject.  This  policy  is  issued 
in  the  following  memorandum: 

1.  Nothing  can  take  the  place  of  personal  contact  with 

customers. 

2.  Form  letters  should  be  used  only  until  the  customer 

will  answer  something,  and  thus  give  a  basis  for 
a  dictated  letter  that  will  exactly  fit  his  particular 
case. 

3.  No  collection  letter  should  be  more  than  one  page 

in  length. 

4.  Form  letters  should  be  revised  at  least  once  in  six 

months ; 

(a)  So  that  they  will  fit  existing  trade,  money, 

and  crop  conditions. 

(b)  So  that  customers  won't  get  to  know  them 

by  heart. 

(c)  So  that  credit  men  will  not  use  them  mechan- 

ically. 

5.  Never  argue  with  a  customer. 

257 


\^ 


if'. 


258 


NEW   COLLECTION  METHODS 


In  addition  to  the  requirement  that  forms  be  frequently 
changed  several  forms  are  prepared  to  cover  the  same  situa- 
tion, to  provide  still  further  variety.  For  instance  there  are 
five  first  letters,  five  second  letters,  four  third  letters,  four 
fourth  letters,  five  fifth  letters,  and  six  attorney  letters.  In 
the  case  of  some  of  these  later  letters,  certain  variations  are 
due  to  differences  in  the  situation.  The  utmost  courtesy  and 
fairness  are  shown  in  every  letter. 

An  Appeal  to  Pride 

One  of  these  "second"  letters  makes  an  interesting  appeal 
to  the  customer's  pride  by  stating,  "98%  of  our  customers 
settle  on  receipt  of  a  reminder." 

Charges  due  December  15 — $ 

Gentlemen : 

We  do  not  believe  in  dun  letters.  We  find  that,  with  98  per 
cent  of  our  customers,  all  that  ever  is  required  to  secure  a  mutu- 
ally satisfactory  settlement  is  a  mere  reminder  that  an  account  has 
become  past  due.     This  is  all  that  this  letter  is  intended  to  be. 

We  have  as  yet  no  record  of  receiving  your  remittance  to  cover 
the  charges  listed  above.  It  is  our  belief  that  you  are  just  as  anxious 
to  clean  up  any  past-due  items  that  may  stand  against  you  as  we  are 
to  have  those  items  balanced. 

Under  the  circumstances,  therefore,  we  shall  look  forward  to 
receiving  at  least  a  partial  settlement  from  you  within  the  next 
few  days. 

Yours  very  truly, 

Disappointment  at  No  Response 

Another  letter  sent  at  this  time  is  simpler  and  expresses 
disappointment. 

June  Account  $ 

Gentlemen : 

We  are  somewhat  disappointed  that  our  letter  about  this  ac- 
count sent  you  a  few  days  ago  has  not  met  with  a  response. 


A  FORM-LETTER    SERIES 


259 


We  believe  you  will  appreciate  that  the  amount  indicated  above 
is  unpaid  and  past  due  at  this  time,  and  we  trust  that  there  will 
be  no  delay  on  your  part  in  forwarding  a  remittance. 

Yours  very  truly. 

Pressing  for  Pa}rment 

Examples  of  the  letters  sent  third  in  the  series  are  the 
two  following: 

Account  $ 

Gentlemen : 

We  cannot  find  that  we  have  heard  from  you  in  reply  to  either 
of  our  previous  letters  regarding  this  account.  The  amount  which 
is  now  past  due  is  listed  above,  and  frankly,  we  think  that  it  ought 
to  be  paid  without   further   delay. 

May  we,  therefore,  depend  upon  your  check  reaching  us  within 
the  next  three  or  four  days  at  the  latest?  « 

Yours  very  truly, 


Account  $. 


Gentlemen : 

We  do  not  wish  to  appear  too  insistent  regarding  this  account, 
but  at  the  same  time  we  feel  that  you  would  hardly  think  well  of 
our  business  methods  if  we  allowed  you  to  forget  it. 

The  amount  listed  above  is  at  this  time  distinctly  past  due. 
If  our  reports  are  correct,  it  remains  unpaid.  We  feel  certain  that 
you  value  a  clean  record  with  this  Company  fully  as  much  as  we 
prize  your  good-will.  As  a  step  toward  fostering  an  even  better 
understanding,  therefore,  we  must  ask  you  to  make  some  arrange- 
ment, without  further  delay,  to  meet  this  obligation. 

You  may  be  sure  that  your  action  in  this  direction  will  be  ap- 
preciated. 

Very  truly  yours. 

Sending  Sight  Draft 

When  the  account  is  thirty  days  overdue  the  company 
may  give  warning  of  a  draft.  One  of  the  letters  used  for 
this  purpose  says,  "It  appears  to  be  the  custom  with  some 


/ 


■k 


1^ 


lir 

•f 


260 


NEW   COLLECTION   METHODS 


of  our  friends  to  settle  bills  only  when  sight  drafts  have  been 
drawn  upon  them.  Is  this  your  preference?  Ordinarily  we 
do  not  take  this  to  be  the  case  but  unless  we  hear  from  you 
by  return  mail  we  shall  conclude  it  so.  We  shall  draw  upon 
you  and  shall  expect  you  to  be  good  enough  to  take  care  of 
our  draft."  This  is  followed  after  a  due  interval  by  a  letter 
announcing  the  draft  and  a  letter  to  the  bank.  A  "punch" 
letter  to  the  bank,  following  up  the  draft,  is  also  included. 

The  "stage  of  urgency"  is  still  more  definitely  indicated  in 
the  following  letter  which  under  different  circumstances  may 
be  sent  either  in  place  of  the  draft  or  following  it.  Another 
similar  letter  begins  with  the  sharp  question:  "Will  you 
kindly  favor  us  with  a  check  by  return  mail  in  settlement  of 
the  above  mentioned  account?"  These  letters  frequently  call 
the  customer  himself  to  witness  the  fairness  and  leniency  al- 
ready shown,  as  in  the  sentence,  "We  believe  you  agree  that 
our  account  ought  now  to  receive  your  serious  attention  with- 
out further  delay." 


Account  $, 


Gentlemen : 

We  have  written  you  on  more  than  one  occasion  regarding  our 
accoimt.  The  bal?nce  is  the  figure  quoted  above.  It  is  consider- 
ably overdue.  We  have  waited  patiently  on  you  and  cannot  under- 
stand why  we  should  not  have  received  a  remittance  by  this  time. 

Now  we  request  your  immediate  attention  to  the  matter  and 
we  frankly  ask  that  you  make  payment  without  further  delay. 

In  making  the  request  we  do  not  believe  that  we  are  asking 
for  anything  more  than  that  to  which  you  will  consider  us  fairly 
entitled. 

Yours  very  truly, 


In  Sorrow  Rather  Than  Anger 

In  an  endeavor  to  "resell  the  house"  to  the  delinquent,  an- 
other letter  recalls  to  him  the  pleasant  relations  which  have 
existed. 


\ 


A   FORM-LETTER    SERIES 


June  Account  $, 


261 


Gentlemen : 

We  are  unwilling  to  assume  that  the  above  account  is  being 
neglected  by  you,  or  that  you  are  intentionally  putting  off  the  date 
of  payment. 

Naturally,    Mr ,    (gentlemen),    we    have    a    high 

regard  for  yourself,  (for  your  good  company),  and  have  greatly 
valued  our  business  associations  with  you.  Anything  which  would 
tend  to  interrupt  even  temporarily  the  pleasantness  of  that  asso- 
ciation would  be  a  matter  of  sincere  regret  to  us.  We  believe  that 
the  association  is  one  which  undoubtedly  will  result  to  our  mutual 
profit,  and  we  are  very  anxious  to  see  the  volume  of  business  be- 
tween us  increased. 

However,  you  do  not  expect  us  to  be  satisfied  with  the  present 
condition  of  your  account.  You  have  delayed  for  a  long  time  mak- 
ing payment  of  the  amount  due.  We  are  frank  to  state  that  this 
condition  is  not  altogether  pleasing  to  us,  and  we  do  not  think  that 
it  is  any  more  pleasing  to  you.  An  unpaid  past-due  account  is  as 
apt  to  breed  friction  as  any  one  thing  that  we  know  of,  and  we 
do  not  wish  any  friction  whatever  between  our  good  customers  and 
ourselves. 

We  have  been  doing  our  best  to  eliminate  any  possible  cause 
of  misunderstanding  by  carrying  your  account  for  a  long  time 
after  it  became  due.  Surely  you  do  not  expect  us  to  continue  to  do 
so.    The  next  move  should  be  made  by  you. 

We  are,  therefore,  looking  forward  to  finding  a  check  attached 
to  your  next  letter  and  we  shall  expect  that  letter  within  the  next 
three   or   four   days. 

Yours  very  truly. 


"The  Turn  of  the  Screw" 

When  it  becomes  necessary  to  refer  the  account  to  an 
attorney,  the  company  provides  a  variety  of  letters,  some 
long  and  some  short.  In  each,  a  sincere  regret  is  expressed 
at  the  interruption  of  pleasant  relations.  One  letter  says, 
"We  feel  that  there  is  nothing  at  this  time  which  we  can  add 
to  our  previous  correspondence."  Another  resells  the  terms 
of  the  house,  expresses  perfect  willingness  to  help  a  customer 
in  a  pinch,  but  points  out  the  liberal  extension  already  granted. 
Still  another  begins,  "It  is  a  matter  of  extreme  regret  to  us  that 


i 


-,  .■ 


262 


NEW   COLLECTION   METHODS 


our  previous  attempts  made  in  the  spirit  of  friendship  and 
good-will  to  obtain  payment  of  the  balance  due  on  our  account 
have  utterly  failed/'  The  following  letter  illustrates  the  step 
taken  at  this  point;  the  third  paragraph  is  optional  for  use 
with  a  previous  delinquency. 

June  and  July  Account  $ 

Gentlemen : 

The  balance  of  our  (June  &  July)  account  due  from  you  at  the 

present  time  is  $ This  matter  has  been  placed  before  you  on 

several  occasions,  but  we  do  not  seem  to  be  able,  through  the  medium 
of  correspondence,  to  get  any  satisfaction  from  you  in  regard  to 
these  charges. 

It  seems  equally  useless  to  make  drafts,  and  therefore  we  cannot 
see  where  there  is  any  other  course  left  to  us  but  to  take  the  usual 
measures  to  enforce  collection  of  a  past-due  account. 

(In  this  connection,  we  cannot  help  feeling  that  we  are  not 
receiving  the  treatment  from  you  to  which  we  are  entitled  as  we 
find  that  we  have  on  previous  occasions  had  to  suggest  the  pos- 
sibility of  having  to  place  the  account  in  the  hands  of  our  attorneys, 
before  we  could  get  settlement.) 

We  appreciate  your  business,  and  are  anxious  that  the  friendly 
relations,  which  have  existed  in  the  past  should  still  continue  be- 
tween us.  At  the  same  time  it  is  only  right  that  we  should  men- 
tion that  if  settlement  of  this  account  is  not  made  within  the  next 
few  days,  we  shall  have  no  alternative  left  but  to  ask  our  attorneys 
to  take  care  of  our  interests  in  the  matter. 

We  regret  the  necessity  for  sending  you  this  message,  and  trust 
to  your  sense  of  fairness  to  set  this  matter  right,  and  to  forward  a 
check  to  cover  the  items  referred  to  without  delay. 

Yours  very  truly, 

A  Case  of  Unusual  Importance 

If  a  firm  is  in  apparently  good  standing,  a  letter  at  this 
point  begins  with  an  expression  of  genuine  surprise  at  the 
fact  that  no  response  has  been  received.  "All  the  informa- 
tion at  our  command,"  the  letter  goes  on,  "would  indicate 
that  you  are  amply  responsible  in  a  financial  way  and  that 
you  are  well  able  to  meet  your  current  obligations  as  they 


A  FORM-LETTER    SERIES 


263 


mature.  We  have  had  every  confidence  in  you  and  do  not 
wish  that  confidence  to  be  mistaken. 

"It  would  certainly  be  strange  to  us  if  we  had  to  resort 
to  such  an  unusual  and  disagreeable  course  as  to  place  an 
account  against  a  firm  with  the  standing  of  your  good  selves 
in  the  hands  of  attorneys  for  attention,  and  we  are  writing 
this  letter,  therefore,  as  a  last  endeavor  on  our  part  to  pre- 
vent any  such  action  if  it  is  necessary." 

This  letter  differs  from  all  others  in  the  series  in  extend- 
ing slightly  over  one  page — an  indication  of  the  unusual 
earnestness  of  the  appeal  to  pride  and  fair  play  involved  in 
this  letter. 

A  Letter  from  the  Branch  Manager 

In  a  case  of  unusual  importance,  the  branch  manager  may 
be  called  upon  to  use  his  personal  influence  to  obtain  an 
amicable  settlement.  His  belief  that  legal  measures  are  un- 
necessary is  expressed  in  the  following  letter: 

June  and  July  Account  $ 

Gentlemen : 

Our  Credit  Department  has  just  referred  to  me  for  personal 
attention  the  charges  which  stand  on  our  books  against  you.  They 
have  shown  me  the  file  of  correspondence  regarding  this  account. 
It  seems  that  they  have  written  quite  a  number  of  letters  on  the 
subject  and  of  course  you  have  been  receiving  statements  at  the 
beginning  of  each  of  the  last  several  months,  but  so  far  we  have 
not  received  the  looked  for  response  in  the  shape  of  a  check. 

It  has  been  suggested  that  the  matter  be  referred  to  our  legal 
representatives  for  attention,  but  it  occurred  to  me  to  write  you  a 
letter  on  the  subject  as  I  really  do  not  anticipate  that  any  such 
action  on  their  part  will  be  necessary.  To  the  best  of  my  knowledge 
and  belief,  the  account  is  correctly  rendered.  I  have  not  been  made 
aware  of  any  reason  why  payment  should  not  be  made.  All  the 
information  we  have  at  hand  would  indicate  that  you  are  amply 
responsible  in  a  financial  way  and  we  have  always  understood  that 
it  is  your  custom  to  meet  your  obligations  satisfactorily. 

Won't  you,  therefore,  do  me  the  favor  of  responding  to  this 
letter  promptly  and,  if  the  account  is  correctly  rendered,  send  us  a 


264 


NEW   COLLECTION   METHODS 


A   FORM-LETTER   SERIES 


m 


1 


!l 


check,  and  if   there  is  any  error,  please  tell  us  frankly  about  it  so 
that  we  may  investigate  and  if  it  is  found  to  exist,  correct  it? 

We  have  been  anxious  to  give  you  good  service  in  every  pos- 
sible way  and  naturally  I  feel  that  there  should  be  no  reason  for 
our  being  forced  to  take  extraordinary  measures  to  collect  an  ac- 
count from  a  customer  whose  business  we  value  as  we  do  yours. 

Yours  truly, 


Branch    Manager 

Avoiding  Controversy  Over  Small  Amount 

Various  other  letters  are  provided  for  acknowledging 
payments  made  on  account  and  asking,  with  more  or  less 
urgency,  for  the  balance;  for  refusing  extension  and  making 
various  part  payment  arrangements;  for  returning  a  note  as 
contrary  to  the  company's  policy,  and  suggesting  a  different 
arrangement;  and  for  handling  various  problems  arising  in 
connection  with  the  cash  discount.  For  example,  the  company 
in  a  courteous  letter  of  some  length  explains  its  inability  to 
allow  discounts  taken  in  the  second  month,  on  bills  rendered 
in  the  last  few  days  of  the  month.  A  somewhat  more 
severe  letter  to  a  customer  who  has  taken  the  discount  when 
his  payment  was  thirty  days  overdue,  explains  that  the  reason 
for  the  discount  is  to  secure  prompt  payment,  and  the  com- 
pany cannot  allow  both  time  and  discount  of  the  payment 

The  close  personal  connection  between  the  branch  man- 
ager and  the  customer  is  taken  advantage  of  when  it  is  de- 
cided to  allow  a  wrongful  discount  rather  than  create 
friction;  or  when  the  home  office  has  determined  to  charge 
off  a  small  item  which  it  has  been  unable  to  collect. 

Gentlemen : 

Our  Credit  Department  have  brought  to  my  attention  the  charge 
against  you  dated  June  15  amounting  to  $2.63. 

I  am  frank  to  state  that  I  cannot  understand  why  you  do  not 
pay  it  as  it  seems  to  me  that  it  is  a  correct  charge  and  one  which 
ought,  in  the  regular  course  of  business,  to  be  settled  by  you.    At 


265 


the  same  time,  we  do  not  wish  to  get  into  a  controversy  with  you 
over  an  item  of  $2.6^. 

We  value  your  business  and — more  even  than  your  business — 
your  good-will.  Rather,  therefore,  than  allow  the  possibility  of  a 
misunderstanding  over  such  a  small  item  to  interfere  with  our  good 
relations  in  the  future,  we  shall  recommend  our  home  office  to 
charge  off  this  item  of  $2.63,  in  the  hope  that  in  the  future  you 
will  settle  our  charges  as  rendered  so  that  no  similar  opportunity 
for  a  misunderstanding  will  exist. 

Yours  very  truly. 


Branch  Manager 


1 


c 

I 


ip 


'i^ 


CHAPTER    XXVI 

TRADE    ACCEPTANCES 

The  Object  of  the  Trade  Acceptance 

Many  a  business  man  has  determined  to  use  trade  ac- 
ceptances in  his  collection  procedure.  He  does  so  for  the 
same  reason  that  has  led  him  to  offer  a  discount  for  prompt 
payment;  that  is,  in  order  to  set  his  capital  free  for  use  in 
his  own  business  instead  of  allowing  it  to  remain  in  the 
hands  of  his  customer  during  the  usual  credit  period.  The 
seller  on  receiving  the  acceptance  usually  discounts  it  at  the 
bank  and  gets  his  money  at  once.  The  buyer,  when  the 
acceptance  becomes  due,  pays  the  bank  instead  of  the  seller; 
if  unable  to  pay  at  maturity  he  secures  an  extension  and 
gives  his  note. 

Because  this  operation  increases  the  amount  of  capital 
available  for  business  in  the  country,  it  is  being  urged  as  an 
emergency  measure  in  which  all  merchants  should  co-operate 
so  far  as  possible  during  the  period  of  the  war.  It  has  great 
value  also  as  a  permanent  reform  in  curing  a  great  deal  of 
looseness  in  credit-granting  and  of  carelessness  in  payment. 
Moreover,  it  transfers  the  credit  burden  from  the  back  of  the 
seller  to  that  of  the  buyer  where  it  logically  belongs. 

There  is  nothing  essentially  new  in  the  trade  acceptance 
method.  It  is  common  in  Europe  and  has  been  used  to  some 
extent  here. 

The  campaign  for  its  use  is  essentially  a  campaign  to 
increase  the  amount  of  money  in  the  United  States  during 
war  time  and  to  reform  the  abuses  of  the  open-book-account 
system,  by  popularizing  an  alternative  system.  The  nature 
of  the  plan  is  taken  up  more  fully  at  the  end  of  this  chapter. 

266 


TRADE  ACCEPTANCES 


267 


Selling  the  Acceptance  Idea 

Since  it  presents  so  many  obvious  advantages  especially 
in  collection  from  customers  who  have  ordered  small  bills  of 
goods  or  upon  whom  for  other  reasons  the  credit  hold  is 
not  strong,  credit  managers  are  enthusiastically  advocating 
its  use.  Many  houses  wisely  refrain  from  offering  too  much 
explanation  by  mail  but  simply  request  that  it  be  used,  some- 
times also  sending  a  pamphlet  dealing  with  the  subject.  The 
buyer  who  uses  the  acceptance  recognizes  the  fact  that  he 
will  pay  within  the  credit  period  in  any  case — ^which  is  true 
of  the  great  majority  of  commercial  transactions — and  he  is 
willing  to  sign  the  acceptance  as  an  accommodation  to  the 
seller  and  for  motives  of  patriotism.  He  recognizes  also 
that  this  method  makes  him  more  careful  of  his  obligations 
and  tends  to  prevent  overbuying,  the  rock  on  which  so  many 
merchants  split. 

Acceptances  broaden  the  buying  field  of  the  merchant. 
By  means  of  a  letter  of  credit  from  his  bank  to  the  effect  that, 
under  certain  conditions  and  up  to  a  certain  agreed  figure,  it 
will  accept  all  bills  drawn  for  his  account,  he  is  able  to  make 
his  purchases  advantageously,  even  in  markets  where  he  is 
unknown.  The  system  is  thus  to  the  advantage  of  the  mer- 
chant who  wishes  to  buy  in  new  markets. 

Some  companies  find  it  advantageous  to  offer  a  discount 
for  the  use  of  the  acceptance.  The  form  shown  on  page  268 
is  used  by  the  Scott  Paper  Company  of  Philadelphia.  It 
shows  the  merchant  in  parallel  columns  the  advantages  which, 
under  the  terms  established  by  the  company  result  from 
discounting  in  the  usual  way  or  signing  the  trade  acceptance. 
This  statement  has  superlative  clarity  and  simplicity  and 
throws  the  trade  acceptance  method  into  great  prominence. 
Indeed  it  practically  "forces  the  card"  upon  the  customer, 
though  he  apparently  has  free  choice  among  the  three  methods 
presented. 


i! 


1 


268 


NEW   COLLECTION   METHODS 


'•  Before  you  decide  how  jrou  wBI  Mt|k  Uw  •ecompeftjring  accewit  may  we  rcqueM  yon  to 
oethodtby  whicb  purcluacsof  SMttitttieprodvcttauy  bcMtned.  


cooader  the  three 


NO.  I 

Ciscottnting  !«•  s9>   10  d».y 
from  date  of  tkipmeiit 

RESULT 
A  Mtring  to  you  of  *f6  in  return 
for  the  isvcstincnt  of  your  i^pital 
in  good*  wkick  yoa  here  yet  to 
mU. 


NO.  2 
ComplclinK  and  returning  (he  Trade 
Acceptance  or  Negotiable  ReccipC  at- 


RCSULT 

Anviagof  1%  in  coal,  tad  60  days 
time  during  wbt^  you  may  ase  the  re- 
cciptt  ooaiag  in  froin  the  aale  of  the 
^eodi  bcfsft  you  will  be  called  upon  to 
iuke  any  invcatoient  io  them. 

The  atrcagthcning  of  yow  credit 
ilirf*^  by  idvu tiling  your  prampt* 
tm$  in  merting  obHgationa. 


NO.  a 
Making  pqrmeat  act,  |0  day* 
dale  of  thipacnt 

RESULT 
Neccatnates  paying  full  price  for 
.gooda  which  aaight  be  purchased  for 
^5)  of  list  price.  Patting  with  fuR  coft 
within  30  dayi  when  by  co-operation 
and  taking  advantage  of  up-to-date 
meihodt  60  day-time  might  be  legiti- 
mately takes. 


tt  ia  evident  that  methods  Na  1  and  No.  a  lead  to  profitable  reaulta  while  method  No.  J  is  unprofcabletopur- 
chaser  and  seOw  aXke.  Purchasing  on  an  open-Moomit  basis  is  rapMly  becoming  »6  be  loelced  upon  ai  nnprofiiable. 
iMflkieot  and  therafoie  obsolete.    Cit*  Trade  Acceptances  oa  Discount. 


8 

0 

8- 

U 
0 


8    ^< 


S. 


Phiuadeuphia.  PA.- 


JA. 


»  «UT  •#  TMS  ^v^eww  •#  i 


•M  ••yn.saaSMT  or  ow«  ii*vo««  or. 


_L» 


TO, 


Scott  |>apec  Company 


A  "deadly  parallel"  that  "sells"  the  trade  acceptance. 

The  credit  manager  of  the  company,  E.  S.  Wagner, 
writes  as  follows  concerning  his  propaganda  for  the  trade 
acceptance: 

The  acceptance  form  itself  and  the  circular  entitled  "How 
Authorities  View  Its  Promotion  to  Trade  Usage"  are  mailed  with 
original  invoices  going  to  customers  who  do  not  avail  themselves 
of  the  2%  discount  we  allow  for  a  lo-day  settlement.  In  the  case 
of  an  invoice  going  to  a  customer  who  has  never  purchased  be- 
fore, we  also  send  our  little  booklet  along  with  the  trade  acceptance 
and  the  circular. 

If  the  customer  does  not  complete  and  return  our  Trade  Ac- 
ceptance, nor  take  advantage  of  our  cash  discount  terms,  but  in- 
stead remits  net  in  30  days,  we  send  him,  with  the  receipt  for  the 


TRADE   ACCEPTANCES 


269 


cash  settlement,  a  little  yellow  card,  which  tends  to  show  how  in- 
efficient it  is  to  purchase  on  net  cash  terms.  This  yellow  card, 
therefore,  completes  a  series  of  trade  acceptance  propaganda  which 
started  when  our  salesmen  demonstrated  that  "Trade  Acceptances 
permit  of  practically  cash  discount  terms,  on  an  extended  settle- 
ment." This  was  followed  up  and  the  customer  received  executed 
trade  acceptance  and  circular  with  original  invoice,  and  when  these 
two  suggestions  failed  to  sell  him,  and  he  lost  not  only  the  1% 
discount  but  the  30  days  besides,  we  made  that  fact  known  to  him 
through  the  little  yellow  reminder. 

Believing  that  it  is  a  poor  rule  that  will  not  work  both  ways, 
we  retire  as  many  of  our  own  purchases  as  possible  on  trade  accep- 
tance terms  and  feel  that  if  such  a  policy  were  practiced  by  the  larger 
manufacturing  and  jobbing  houses,  the  solution  of  the  problem  of 
introducing  trade  acceptances  generally,  would  be  somewhat  hast- 
ened. 


535  SCOTTISSUE  PRODUCTS  ARE  CHEAPER 

i(   purchased  on  acceptance  terms    instead    of    open    account 

Had  you  accepted  the  draft  sent  you  with  original  invoice  o( 

$  "7^^  this  purchase  would  have  cost  you  hut  $  "tTT 

a   saving  of  $  TZT*  "nJ   V©"   would   have   had    until 

1Q1  to  make  setllentjcnt  into  the 

bafgain. 

In  other  words  you  can  carry  Scott  Products  without  investing  a 
$  $  $  of  your  capital  providing  you  can  turn  a  jobber  quantity  ol 
our  goods  in  60  days* 

NEXT  TIME  WHY  NOT  SETTLE  VIA  THE 
TRADE  ACCEPTANCE. 
|K  IT  WILL  PAY  YOU  AND  PROVE  CONVENIENT. 


^ 


The  form  that  completes  the   propaganda  for  trade  acceptances. 

for  cash   settlement. 


Sent   with   receipt 


Retail  Use  of  Trade  Acceptances 

In  certain  localities  retail  merchants  have  not  hesitated 
to  employ  trade  acceptances  to  close  their  books  at  the  end 
of  the  month,  urging  them,  of  course,  only  upon  customers 


270 


NEW   COLLECTION   METHODS 


TRADE   ACCEPTANCES 


271 


r  ^'i 


W   i 


who  have  been  slow  pay.  The  emergency  situation  in  the 
country  and  the  difficulty  of  retailers  in  doing  a  satisfactory 
business,  being  well  known  to  many  retail  customers,  has 
made  this  more  possible  than  under  previous  conditions.  The 
retailer  is  in  a  position  to  say  to  his  customer,  "Of  course 
you  would  pay  your  bill  before  this  acceptance  became  due 
anyhow,  so  it  will  be  no  hardship  to  you.  If  people  will 
agree  to  pay  me  in  this  fashion,  I  can  get  my  money  earlier 
from  the  bank  and  pay  the  wholesalers  from  whom  I  buy.  A 
good  many  of  them  are  demanding  trade  acceptances  of  me, 
and  so  I  am  asking  the  co-operation  of  my  customers." 

Its  installation  in  the  city  of  Joliet,  Illinois,  is  explained 
as  follows  in  information  supplied  by  George  Woodruff, 
president  of  the  First  National  Bank  of  Joliet,  and  chairman 
of  the  Committee  on  Trade  Acceptances  of  the  Chamber  of 
Commerce  of  the  United  States,  and  given  in  a  letter  by 
E.  H.  Krueger,  secretary  of  the  Association  of  Commerce: 

The  bankers  of  Joliet  recently  agreed  that  it  would  be  a  very 
great  advantage  to  them  if  our  retail  credit  situation  was  put  in 
the  strongest  possible  position  because  our  merchants  were  extend- 
ing considerable  lines  of  credit  to  the  masses  of  people  and  with 
the  possibility  of  some  business  reverses  after  the  war  there  was 
the  probability  that  some  of  our  local  people  might  find  themselves 
out  of  work  or  in  other  ways  somewhat  hard  up  for  ready  money. 
When  these  conditions  have  occurred  in  the  past,  our  people  have 
been  unable  to  pay  their  accounts  to  our  merchants,  and  many  of 
them  have  consequently  become  very  slow  in  making  payments  while 
others  have  moved  away,  or  refused  to  pay  up  their  old  accounts. 

This  condition  has  in  the  past  embarrassed  our  merchants  and 
resulted  in  the  failure  of  some  of  them,  and  of  course  the  banks 
have  consequently  suffered  losses.  This  whole  situation  is  of  course 
against  the  interests  of  the  banks,  and  also  against  the  interests  of 
the  whole  community.  The  bankers  agreed  that  the  adoption  of 
the  trade  acceptance  system  by  our  local  merchants  in  place  of  the 
present  open-book-account  system  would  largely  eliminate  the  most 
dangerous  features  of  our  local  credit  situation. 

At  a  meeting  of  our  merchants,  all  of  our  bankers  attended  and 
suggested  that  when  a  statement  was  sent  to  a  charge  customer  at 


the  end  of  the  month  a  trade  acceptance  made  out  for  30  days'  time 
should  be  enclosed  and  the  customer  should  be  requested  to  either 
make  payment  of  the  account  within  5  days,  or  else  sign  and  return 
the  trade  acceptance. 

This  change  does  not  disturb  any  of  the  business  customs  in 
use;  a  merchant  is  able  to  accept  partial  payments  on  the  trade 
acceptance  and  if  his  customer  is  unable  to  pay  at  the  end  of  30 
days  the  merchant  may  renew  the  account  by  taking  a  promissory 
note  bearing  interest.  He  should  never  take  a  trade  acceptance  for 
a  renewal.  By  taking  a  promissory  note  he  is  able  to  charge  a  fair 
rate  of  interest,  while  under  the  present  plan  he  is  never  able  to  get 
any  interest  on  his  money,  which  is  tied  up  in  overdue  accounts. 

Furthermore,  the  merchant  will  largely  eliminate  slow  accounts 
by  the  trade  acceptance  system  because  he  will  doubtless  discount 
the  trade  acceptance  with  his  bank,  and  his  local  customer  will  re- 
ceive a  notice  from  the  bank  to  meet  the  trade  acceptance  when  due 
and  the  local  customer  usually  pays  the  banker  with  a  considerable 
degree  of  promptness  while  he  might  be  inclined  to  be  slow  with 
the  merchant.  Then,  too,  the  merchant  has  an  opportunity  to  guard 
against  extending  too  much  credit  to  weak  people,  because  when  he 
discounts  the  trade  acceptances  at  the  bank,  the  banker  checks  them 
over  carefully  and  may  perhaps  reject  the  acceptances  of  people 
who  are  not  honest  or  financially  responsible  for  the  amount  in- 
volved. This  is  notice  to  the  merchant  to  watch  this  particular  ac- 
count and  not  overextend  credit. 

The  trade  acceptance  will  prevent  the  average  consumer  from 
overbuying  as  he  will  realize  that  it  is  necessary  for  him  to  pay 
the  trade  acceptances  promptly,  and  he  will  consequently  not  be  in- 
clined to  buy  four  or  five  times  as  much  goods  as  he  can  hope  to 
pay  for  within  a  reasonable  length  of  time.  This  will  do  away  to  a 
considerable  extent  with  mail-order  competition  as  the  customer  of 
the  average  retail  merchant  usually  uses  his  ready  money  to  buy 
goods  through  the  mail,  and  allows  the  merchant  to  carry  the  ac- 
counts past  due.  As  a  matter  of  fact,  the  retail  merchant  is  really 
the  man  who  now  finances  the  purchases  from  the  mail-order  house. 
The  merchant  is  also  better  able  to  obtain  money  from  his 
*»anker  with  trade  acceptances  because  a  banker  usually  only  loans 
a  merchant  50  per  cent  of  his  accounts  receivable,  while  the  average 
banker  will  be  glad  to  take  100  per  cent  of  his  trade  acceptances. 
Then,  too,  the  Federal  Reserve  Banks  grant  a  rate  of  interest  on 
the  rediscount  of  trade  acceptances  of  one-half  of  i  per  cent  lower 
than  on  single-name  paper  and  consequently  our  banks  in  Joliet 
pass  this  saving  on  to  the  merchant  and  charge  him  one-half  of 
I  per  cent  less  interest  on  trade  acceptances  than  on  straight  notes. 


2^2 


NEW   COLLECTION   METHODS 


TRADE  ACCEPTANCES 


273 


\U 


Most  of  the  bankers  endorse  the  trade  acceptances  and  turn  them 
over  to  the  Federal  Reserve  Bank  at  4  per  cent  or  45^  per  cent,  in 
that  way  making  a  good  profit  for  the  bank  without  tying  up  any 
of  its  funds  and  also  saving  the  merchant  one-half  of  i  per  cent 
in  his  interest. 

In  some  small  communities  where  the  capital  and  surplus  of 
the  local  bank  is  small,  the  local  merchants  have  been  hampered  by  the 
rule  which  prohibits  banks  from  loaning  more  than  10  per  cent  of  their 
capital  and  surplus  to  any  one  firm.  Trade  acceptances  may  be  re- 
ceived by  a  bank  from  one  firm  without  regard  to  this  10  per  cent  rule 
because  it  does  not  apply  to  trade  acceptances.  Of  course,  our  bankers 
feel  that  this  system  will  not  only  put  the  credit  situation  of  the  city  on 
a  much  sounder  basis  to  encounter  whatever  business  conditions  may 
be  in  store  for  them  after  the  war,  but  from  their  own  standpoint 
they  feel  that  they  have  much  safer  risks  as  the  paper  bears  two 
names  and  will  undoubtedly  be  paid  more  promptly  and  regularly 
than  are  the  old-fashioned  single-name  notes.  In  Joliet,  our  mer- 
chants are  perfecting  their  forms  and  will  expect  to  put  the  system 
into  actual  operation  within  the  next  few  weeks. 

The- Acceptance  Explained  in  Detail 

Fuller  explanation  of  the  various  points  connected  with 
trade  acceptance  is  set  forth  in  the  following  questions  and 
answers  reprinted  by  permission  from  a  pamphlet  published 
by  the  Irving  National  Bank  of  New  York  City,  entitled, 
"Practical  Questions  and  Answers  on  the  Trade  Acceptance 
Method." 

1.  What  is  a  trade  acceptance  f 

A  negotiable  certificate  of  indebtedness  arising  out  of  a  current 
transaction  in  merchandise. 

2.  In  what  form  may  the  trade  acceptance  be  issued f 

See  facsimile  of  trade  acceptance  form  on  page  273. 

3.  Give  the  ordinary  distinction   between  a  trade  acceptance  and 

a  draft. 

The  trade  acceptance  is  confined  to  credit  obligations  arising 
from  the  sale  of  goods,  and  must  have  a  definite  maturity. 
The  draft  may  cover  various  kinds  of  transactions,  may  be 
payable  on  demand,  at  sight,  or  at  the  end  of  a  stated  time. 

4.  Give  the  ordinary  distinction  between  a  trade  acceptance  and  a 

promissory  note. 


Trade  Acceptance 


.._ J*mOm>  BY  THS 

Amsmcan  Tradb  Accbptancb  Council 

■niiiciNa  ootoamm  or  wb  _^_ 

CKAMSnOP  ^m^nCB  0»  THI  UWT»>  ITATIt 


Trade  Acceptance 


274 


NEW    COLLECTION   METHODS 


TRADE  ACCEPTANCES 


275 


; 

- 


The  trade  acceptance  is  limited  to  obligations  arising  from  the 
sale  of  goods.    The  promissory  note  may  cover  practically  any 

kind  of  obligation 

14.  What  is  the  purpose  of  the  trade  acceptance? 

To    express    a    credit    obligation    arising    from    the    sale    of 
goods 

16.  Describe  the  business  practice  involved  in  a  merchandise  trans- 

action in  which  the  trade  acceptance  is  used. 

(a)  A  definite  bargain  is  consummated  between  the  seller  and 

the  buyer  of  goods,  and  an  amount  due  with  a  definite 
term  agreed  upon. 

(b)  The  seller  draws  the  acceptance  and  presents  it  to  the  buyer. 

(c)  If  the  buyer  is  willing  to  assume : 

That  title  to  the  goods  has  passed  to  him, 
That  the  trade  acceptance  is  in  proper  form,  and 
That  the  conditions  of  sale  have  been  complied  with, 
he  accepts  by  writing  across  the  face  of  the  instrument, 
the  word  "Accepted,"  the  date,  and  place  of  payment,  and 
his  name,  and  returns  it  to  the  seller,  or  to  the  bank  pre- 
senting it. 

(d)  The  seller  either: 

Holds  it  until  maturity,  or 

Arranges  to  have  it  negotiated.    This  process  may  bring 

the  acceptor,  the  bank,  the  note  broker  and  the  federal 

reserve  bank  into  the  transaction. 

(e)  The  acceptor  either: 

Pays  it  at  maturity,  or 

Secures  an  extension  of  time.     This  is  accomplished  by 

treating  it  as  a  past-due  obligation  and  covering  it  by 

a  promissory  note. 

17.  How  may  a  seller  introduce  the  trade  acceptance  method? 

(a)  By  making  it  a  condition  of  sale. 

(b)  By  writing  an  explanatory  letter,  following  it  up  by  a  trade 

acceptance. 

(c)  By  writing  a  short  explanatory  note  of  a   few  lines  on  a 

perforated  section  above  or  below  the  acceptance,  explain- 
ing its  operation. 

18.  Why  should  a  concern  which  takes  acceptances  also  give  accept- 

ances? 
Because : 

(a)  The  acceptance  method  is  desirable  from  the  standpoint  of 

both  seller  and  buyer. 

(b)  The  fact  that  a  concern  gives  acceptances  serves  as  an  ex- 


cellent argument  to  induce  customers  to  employ  the  same 
method 

24.  Give  some  ndvantages  the  buyer  derives  from  the  trade  accep- 

tance method. 

(a)  Develops  careful  buying. 

(b)  Enables  him  to  keep  better  track  of  his  outstanding  obliga- 

tions, thereby  avoiding  the  evils  of  overextension. 

(c)  Strengthens  his  credit  and  puts  him  in  the  position  of  a 

preferred  buyer. 

(d)  Develops  in  him  the  habit  of  prompt  payment  and  furnishes 

him  with  an  excellent  excuse  for  requiring  prompt  pay- 
ment from  his  customers. 

(e)  Enables  him  to  realize  that  credit  is  as  tangible  as  cash  and 

should  be  guarded  and  used  accordingly. 

(f)  Eliminates   wastage   and   lost   motion    attending    the   open- 

book-account  method. 

(g)  Is  good  business  because  it  releases  business  capital  for  new 

transactions. 

(h)  Improves  the  chances  of  the  buyer  of  small  means  to  operate 
in  successful  competition  with  the  large  buyer. 

(i)  Helps  the  buyer  by  making  him  deal  always  in  current  trans- 
actions rather  than  in  long-drawn-out  book  accounts. 

(j)  As  the  buyer  often  becomes  a  seller,  the  same  advantages 
that  apply  to  the  seller  apply  to  him. 

(k)   Serves  as  a  tonic  to  the  business  organizations  concerned. 

(1)  Prevents  the  accumulation  of  overdue  accounts. 

(m)  Develops  a  sounder  and  more  serious  attitude  toward 
buyer's  own  obligations. 

25.  Give  some  advantages  the  seller  derives  from  the  trade  accept- 

ance method. 

(a)  Relieves  him   from  the  burden  of  financing  his  customers 

and  the  consequent  burdening  of  his  own  capital. 

(b)  Enables  him  to  conduct  business  on  a  more  systematic  basis, 

with  a  more  regular  income  schedule. 

(c)  Puts  the  burden  of  proving  correctness  of  the  details  of  the 

merchandise  transaction  where  it  belongs — upon  the  buyer. 

26.  Does  the  buyer  in  accepting  waive  any  of  the  legal  rights  against 

the  seller  which  he  would  enjoy  under  the  open-book-account 
method? 
No,  but  if  after  accepting  he  pleads  incorrect  deliveries,  he  must 
prove  his  case. 

27.  Give  some  additional  advantages  the  seller  derives  from  the  trade 

acceptance  method. 
(a)  Provides  a  liquid  asset. 


f 


276 


NEW   COLLECTION   METHODS 


TRADE  ACCEPTANCES 


(b)  Reduces  the  expense  of  collections  anri  simplifies  the  pro- 

cess, by  making  it  a  detail  in  banking  machinery. 

(c)  Promotes  the  economical  treatment  of  merchandise  and  en- 

ables the  seller  to  do  business  at  a  smaller  operating  cost. 

(d)  ReHeves  him  from  the  necessity  of  selling  his  accounts  at 

the  high  rate  of  interest  usually  exacted. 

(e)  Enables  him  to  offer  the  bank  additional  security. 

(f)  Strengthens    seller's    financial    statement,    by    showing    the 

character  of  his  accounts. 

(g)  Enables  the  seller  to  gage  more  accurately  the  commercial 

standing  of  the  buyer. 

(h)  Tends  to  confine  borrowing  to  funds  actually  needed. 

(i)  Seller  inoffensively  assists  the  buyer  to  complete  his  con- 
tract in  the  way  in  which  he  originally  intended  to  com- 
plete it. 

(j)  Enables  seller  to  more  accurately  calculate  his  collections 
for  stated  periods. 

(k)  Enables  seller  to  facilitate  his  customer's  business  by  the 
extension  of  credit  and  by  deliveries  in  a  way  not  always 
possible   under   the   open-account   system. 

(1)  Gives  seller  two-named  paper  to  present  to  his  bank  for 
discount. 

(m)  Enables  seller  effectively  to  dispose  of  the  possible  necessity 
of  subsequent  proof  of  the  legal  status  of  the  transaction 
and   to   exhibit   for   inspection   the   highest   possible   class 

of  book  accounts 

29.  Give  some  advantages  general  business  derives  from  the  trade 
acceptance  method. 

(a)  Provides    a    check    against    carelessness    and    extravagance 

by  reminding  the  debtor  constantly  that  his  credit  may 
be  put  to  the  test. 

(b)  Enables  invested  capital  to  do  considerably  more  than   its 

present  volume  of  work  with  less  risk. 

(c)  Lowers  borrowing  rates,  because  of  the  production  of  stand- 

ard paper,  because  of  the  elimination  of  unnecessary  risk, 
and  because  the  Federal  Reserve  Board  offers  preferential 
rediscount  rates  for  this  class  of  paper. 

(d)  Makes  capital  more  fluid  by  releasing  funds  now  tied  up  in 

open-book  accounts  and  by  substituting  readily  negotiable 
commercial  paper  for  non-negotiable  book  accounts. 

(e)  Improves  trade  relations  between  buyer  and  seller  by  clearly 

defining  their  respective  obligations 

31.   Name  the  chief  objections  to  the  open-book-account  method. 

(a)   Provides  an  easy  method  for  the  abuse  of  credit  by  buyers 


277 


(b) 
(c) 


who  allow  their  accounts  to  remain  unpaid  for  unreason- 
able periods,  without  payment  of  interest. 

Time  of  actual  payment  indefinite,  as  both  parties  have 
become  accustomed  to  the  abuse  of  the  extension  privilege. 

Not  "liquid"  assets  and  therefore  not  a  good  basis  for 
credit. 

Creates  the  possibility  of  carrying  sales  argument  into  credit 
period. 

(e)  Unnecessarily  ties  up  an  unreasonable  portion  of  the  mer- 

chandise value  involved. 

(f)  Ties  up  seller's  capital  without  a  stated  compensation  to  him. 

(g)  Costly  in  collections,  extensions,  trade  discounts,  and  abuse 

of  sales  terms. 
(h)  Unnecessarily  forces  seller  to  perform  a  banking  function 

for  the  buyer, 
(i)  Tends  to  raise  prices,  this  being  the  only  way  in  which  the 

seller  can  protect  himself  against  the  burdens  forced  upon 

him 

33.  What  evils,  then,  in  our  present  commercial  methods  would  the 

trade  acceptance  curtail? 

(a)  Practice  of  taking  unearned  and  unauthorized  discounts. 

(b)  Losses  by  bad  debts  and  the  evils  attending  the  carrying  of 

overdue  accounts. 

(c)  The  secret  assignment  of  book  accounts. 

(d)  Practice  of  cancelling  orders  and  returning  goods  without 

sufficient  reasons. 

(e)  Overbuying  and  overselling. 

34.  Does  the  trade  acceptance  eliminate  the  promissory  note? 

No,  the  promissory  note  deals  with  all  kinds  of  business  trans- 
actions— the  trade  acceptance  with  current  merchandise  trans- 
actions alone.  The  trade  acceptance  is  not  to  be  given  for 
borrowed  money,  or  past-due  obligations 

36.  Will  the  trade  acceptance  curtail  the  extension  of  credit? 

No,  it  does  not  change  the  term  of  the  credit — simply  carries  the 
credit  in  better  form. 

37.  Will  the  acceptance  hurt  credit? 

No,  the  merchant  whose  statements  show  Acceptances  Payable 
and  Acceptances  Receivable  should  be  entitled  to  a  higher 
rating  than  one  whose  statements  show  Accounts  Payable  and 
Accounts  Receivable. 

38.  Why  is  this  true? 
Because : 

(a)  The  merchant  who  brings  his  transactions  out  into  the  open 
and  serves  notice  upon  the  business  world  that  he  is  willing 


I 


i 


«! 


^H    i 


278  NEW   COLLECTION   METHODS 

to  meet  his  obligations  at  maturity  is  a  better  business  risk  and 
hence  entitled  to  better  treatment  than  one  who  has  his  accounts 
carried  upon  an  indefinite  and  unbusinesslike  arrangement  such 
as  the  open-book  account, 
(b)  Willingness  to  use  the  acceptance  method  shows  that  a  busi- 
ness man  wishes  to  conduct  his  affairs  upon  a  strictly  busi- 
ness basis.  Public  knowledge  of  this  fact  is  sure  to  find  favor- 
able reflection  in  his  business  standing. 

In  order  to  present  both  sides  of  the  question  of  trade 
acceptances,  some  sections  are  taken  from  a  letter  written 
by  the  assistant  treasurer  of  the  B.  F.  Goodrich  Company, 
showing  why  the  trade  acceptance  is  not  adaptable  for  use 
by  his  company.  The  very  large  discount  of  S  per  cent 
offered  in  this  instance,  together  with  other  factors,  led  this 
company  to  its  decision.  This  statement  should  not  be  con- 
strued as  opposing  the  use  of  trade  acceptances;  it  merely 
explains  certain  limitations  in  their  use.  Anyone  who  reads 
the  last  paragraph  can  determine  for  himself  whether  trade 
acceptances  would  be  serviceable  in  his  business. 

As  you  know,  we  are  definitely  committed  to  the  granting  of 
an  unusually  large  cash  discount.  Our  5  per  cent  cash  discount, 
which  is  a  part  of  our  terms  for  all  branches  of  our  line,  is  equaled 
only  by  the  cash  discount  granted  on  a  few  special  lines  in  the  gar- 
ment field.  You  are  familiar  with  the  reasons  for  the  granting  of 
this  unusually  large  cash  discount.  Since  we  are  dealing  largely 
with  merchants  of  limited  capital,  we  do  everything  that  we  can  to 
make  a  man  turn  his  capital  often. 

The  primary  purpose  of  the  trade  acceptance  movement  is  to 
expand  the  credit  structure  of  the  nation.  Of  course  this  expan- 
sion does  not  in  any  way  increase  the  actual  amount  of  wealth. 
What  we  strive  to  do  with  our  long  cash  discount  is  to  make  a 
man  turn  his  capital  frequently  and  it  follows  that  every  time  that 
he  turns  his  capital  and  makes  a  profit  it  is  producing  wealth. 

From  the  standpoint  of  the  national  interest  in  the  present 
emergency,  it  has  been  held  by  a  dozen  or  more  of  the  country's 
largest  bankers,  to  whom  our  particular  problem  has  been  submitted 
in  detail,  that  we  serve  the  country  better  by  making  our  customers' 
dollars  work  overtime  than  we  would  by  deferring  payments  and 
lengthening  terms,  in  accordance  with  the  trade  acceptance  plan. 


TRADE  ACCEPTANCES 


279 


Looking  at  this  question  from  a  standpoint  solely  of  the  inter- 
ests of  the  Goodrich  Company,  there  are  several  things  to  be  consid- 
ered: First  of  all,  the  acceptance  plan  has  been  devised  to  assist  the 
man  whose  results  in  handling  open  accounts  have  been  just  average, 
or  less  than  average.  It  so  happens  that  our  results,  over  a  period 
of  years,  have  been  very  much  better  than  the  average.  Our  ac- 
counts receivable  are  not  uncertain;  our  losses  are  negligible;  our 
cash  discount  terms  are  enforced  in  all  of  our  dealings  with  all  of 
our  customers.  If  we  are  to  put  into  operation  a  system,  which 
is  planned  to  bring  up  the  man  who  has  been  getting  poor  results 
to  a  level  where  he  can  expect  average  returns,  we  actually  will 
have  to  bring  ourselves  down  to  a  lower  level  than  that  upon  which 
we  have  been  doing  business.  This  is  just  a  matter  of  mathematics. 
We  are  not  taking  credit  to  ourselves,  because  our  collection  results 
have  been  exceptionally  good  (we  know  that  they  can  be  better), 
but  we  do  not  care  to  lose  any  of  our  "punch"  merely  because  a  lot 
of  other  fellows  have  slow  accounts  and  cannot  enforce  cash  dis- 
count terms. 

If  we  were  to  make  a  general  use  of  trade  acceptances,  we  prob- 
ably could  discount  those  acceptances  and  in  this  way  borrow  money 
at  a  figure  slightly  under  the  current  market  rate  for  single  name 
paper.  At  the  same  time,  if  we  did  this  we  would  be  merely  bor- 
rowing money  on  the  name  of  the  B.  F.  Goodrich  Company,  so 
far  as  most  of  the  acceptances  might  be  concerned,  because  we  have 
very  few  customers  whose  names  on  the  pieces  of  commercial  paper 
would  mean  anything  as  a  basis  for  borrowing  from  our  banks  in 
New  York,  Philadelphia,  Boston,  or  Chicago. 

Furthermore,  it  would  be  necessary  to  create  a  special  depart- 
ment to  handle  these  acceptances.  The  maintenance  of  such  a  de- 
partment would  represent  a  considerable  item  of  expense.  It  would 
also  be  necessary  to  set  up  and  to  keep  up  a  reserve  to  pay  discounted 
acceptances  which  our  customers  did  not  meet  when  they  came 
due.  The  interest  on  this  reserve  alone  would  more  than  eat  up  the 
slight  saving  in  the  cost  of  borrowed  money  secured  on  acceptances. 

It  must  be  borne  in  mind  also,  that  if  we  were  to  use  accep- 
tances regularly  throughout  the  year,  we  would  face  a  necessary 
lengthening  of  our  terms.  We  could  not  profitably  arrange  to  discount 
and  rediscount  customers'  paper  which  would  run  for  less  than  60 
days.  This  would  react  directly  upon  the  Credit  Department,  be- 
cause, instead  of  being  in  a  position  to  shut  off  upon  a  man  when 
he  did  not  take  advantage  of  his  cash  discount  for  a  single  month's 
purchases,  our  cash  discount  would  be  eliminated  and  we  would 
have  no  excuse  for  shutting  off  deliveries  until  a  man  failed  to  meet 
his  first  acceptance  at  the  end  of  60,  or  possibly  even  90  days. 


28o 


NEW  COLLECTION  METHODS 


TRADE  ACCEPTANCES 


281 


t 


V  ^ 


The  credit  men  also  would  face  the  problem  of  handling  cus- 
tomers who  would  give  acceptances,  sincerely  believing  that  these 
acceptances  represented  cash  and  actually  paid  their  accounts.  For 
example,  a  dealer,  with  a  credit  limit  of  $5,000  would  order  $5,000 
worth  of  goods  from  us,  under  the  dating  proposition,  in  January 
and  would  give  us  an  acceptance  for  $5,000  when  the  goods  were 
delivered.  It  would  be  a  very  difficult  thing  for  us  to  convince 
that  dealer  that  by  giving  us  his  name  on  a  piece  of  paper  he  had  not 
actually  paid  his  bill.  If  he  were  to  give  us  an  acceptance,  it  would 
be  nothing  more  than  natural  for  him  to  expect  to  come  right  in  to 
order  and  receive  another  $5,000  worth  of  goods  on  open  account. 
Of  course  the  acceptance  would  merely  serve  as  a  basis  for  bor- 
rowing and  the  transaction  would  produce  no  money  except  such 
money  as  the  B.  F.  Goodrich  Company  would  borrow  and  pay 
for.  The  customer's  account  would  not  be  settled  until  the  ac- 
ceptance cleared  at  his  bank  on  the  date  due.  If,  after  taking  his 
$5,000  acceptance  we  were  to  give  him  another  $5,000  worth  of 
goods  on  open  account,  we  merely  would  be  doubling  his  limit  with- 
out any  sort  of  security. 

From  the  standpoint  of  the  B.  F.  Goodrich  Company  alone, 
therefore,  the  use  of  the  trade  acceptance  would  involve  additional 
operating  detail  and  additional  expense,  with  an  actual  slowing  up 
of  our  collection  methods  and  an  increase  in  risks. 

From  the  standpoint  of  the  salesmen  in  the  field,  the  trade  ac- 
ceptance is  a  mean  thing  to  handle,  because  at  the  time  he  takes 
the  order  the  salesman  is  compelling  the  buyer  to  think  definitely 
and  specifically  about  paying  the  bill.  The  chances  are  if  an  order 
is  taken  for  a  thousand  dollars  and  then  the  salesman  asks  the  cus- 
tomer to  sign  an  acceptance  for  a  thousand  dollars,  that  in  many 
cases  the  customer  will  wish  to  be  on  the  safe  side  of  things  and 
will  actually  cut  down  the  amount  of  the  order  placed  with  us. 
Further,  if  we  are  to  place  upon  the  salesman  in  the  field  the  burden 
of  explaining  a  trade  acceptance  plan  to  customers,  we  are  going  to 
make  it  necessary  for  him  to  spend  a  good  part  of  his  time  selling 
this  part  of  the  program  to  customers — the  time  which  might  other- 
wise be  devoted  directly  to  producing  orders. 

When  the  proposition  is  viewed  from  the  standpoint  of  the 
customer,  there  is  just  one  question  to  be  asked  and  answered. 
Why  should  any  customer  who  has  regularly  discounted  his  bills, 
give  to  the  B.  F.  Goodrich  Company  a  trade  acceptance,  unless 
conditions  have  so  changed  that  we  actually  need  that  customer's  as- 
sistance in  financing  his  tire  purchases  through  a  dating  period? 
When  we  ask  the  customer  for  an  acceptance,  we  give  him  nothing 
in  return   for  it — it  is  just  an  additional  consideration   that  he   is 


showing  us.  If  we  are  dealing  with  customers  who  live  up  to  the 
contracts  that  they  make  and  if  we  see  to  it  that  they  do  live  up 
to  these  contracts,  the  acceptance  would  give  to  the  customer  nothing 
that  he  does  not  already  have,  and,  as  many  customers  will  persist  in 
viewing  it,  would  be  merely  requiring  the  customer  to  give  some 
form  of  "security"  as  a  guarantee  that  he  will  pay  his  bills  when 
he  says  he  will.  If  a  customer  always  has  maintained  a  clean  dis- 
count record  with  us  it  would  be  a  little  bit  hard  for  him  to  figure 
out  why  we  should  require,  at  the  present  time  from  him,  more  than 
we  have  in  the  past. 

We  believe  that  the  trade  acceptance  is  an  excellent  thing  for 
the  concern  of  limited  capital  doing  business  with  established  cor- 
porations, whose  names  on  acceptances  will  be  a  direct  addition  to 
the  borrowing  power  of  the  people  to  whom  the  acceptances  are 
given.  We  believe  in  acceptances  for  houses  selling  goods  on  very 
long  terms  to  customers  who  are  not  in  the  habit  of  paying  promptly, 
also  for  houses  that  have  found  open  accounts  to  be  "a  very  uncer- 
tain thing"  and  for  those  houses  who  experience  great  difficulty  in 
enforcing  cash  discount  terms. 


CONSTRUCTIVE   CREDIT   WORK 


283 


li 


[i 


\l- 


r^ 


I 


i] 


CHAPTER    XXVII 

CONSTRUCTIVE  CREDIT  WORK 

Insolvency,  Insincerity,  or  Instalments 

Many  executives  have  adopted  constructive  credits  be- 
cause the  system  gives  them  a  rational  alternative  to  bank- 
ruptcy in  dealing  with  certain  cases.  Worthless  promises 
they  do  not  consider  a  rational  alternative.  What  ground 
have  they  for  believing  that  a  hard-pressed  merchant  who 
has  long  been  slow  pay,  and  who  has  even  failed  to  live  up 
to  an  arrangement  for  part  payments,  will  suddenly  manage 
to  reform?  The  tide  of  his  fortune  may  turn  of  its  own 
accord,  but  these  executives  prefer  to  lend  it  a  helping  hand. 
They  are  reluctant  to  offer  instalment  payments,  but  they 
prefer  this  to  bankruptcy  and  the  probable  loss  of  what  is 
due  them;  while  they  are  equally  averse  to  accepting  prom- 
ises to  pay  the  full  amount  by  a  certain  date,  when  they 
know  these  hopeful  anticipations  are  "writ  in  water."  When 
offered  the  alternatives  of  "insolvency,  insincerity,  or  instal- 
ments," they  choose  the  least  of  these  evils. 

This  chapter  is  especially  concerned  with  the  newest  de- 
velopment of  constructive  credit  work,  the  traveling  represen- 
tative who  gets  on  the  ground,  analyzes  the  customer's 
troubles,  and  helps  him  out  of  them  by  "efficiency  sugges- 
tions." 

"But,"  object  some  credit  men,  "if  a  merchant  is  going  to 
fail  anyway,  better  press  him  hard  and  get  your  money,  even 
if  it  does  send  him  to  the  wall  a  little  sooner."  That  this 
course  is  sometimes  necessary,  no  one  will  doubt.  "But  why 
be  so  certain,"  say  others,  "that  failure  is  inevitable?    The 

282 


man  certainly  will  drown  if  you  pull  away  the  plank;  but 
possibly  if  you  throw  him  a  life-preserver,  he  may  struggle 
to  shore.  Looked  at  only  from  the  cold-blooded  point  of 
view,  a  merchant  saved  through  your  efforts  is  a  good  friend 
thereafter.     Bankrupts  order  no  goods." 

The  policy  of  offering  helpful  advice  to  customers  whose 
accounts  are  past  due,  as  well  as  allowing  the  usual  ex- 
tensions of  time,  is  no  mere  theory,  but  in  various  forms  is 
actively  used  by  many  houses,  and  has  stood  the  acid  test. 
Those  who  use  it  most  will  tell  you  many  stories  of  disap- 
pointment, of  men  who  could  not  or  would  not  be  saved ;  but 
they  tell  you  also  of  men  who  have  been  put  on  their  feet  in 
a  financial  crisis,  or  have  been  brought  to  right  practices  by  a 
bit  of  earnest  advice,  and  have  become  prosperous  merchants. 

Ambassadors  of  the  Diplomacy  of  Business 

A  friendly  salesman  in  his  shirt-sleeves,  working  ener- 
getically after  hours  to  sweep  up  a  customer's  floor  or  to  fix  a 
window  display  for  the  big  sale  tomorrow,  is  a  practical 
demonstrator  of  the  good- will  of  his  house.  He  can  put 
ginger  into  the  merchant  who  was  ready  to  give  up  without 
another  struggle.  "I  always  do  some  real  physical  work  for 
the  fellow  whom  the  house  has  sent  me  out  to  see,  with  the 
order  to  'find  out  what  is  the  matter  with  Brown  and  try  if 
you  can't  get  him  to  send  us  some  money.'  Brown's  dis- 
couragement affects  him  like  the  palsy,  and  the  sight  of 
somebody  stirring  around  gets  him  into  action,  warms  up  his 
blood,  and  gives  him  some  hope  of  life."  So  spoke  a  sales- 
man, who  would  be  surprised  if  you  called  him  an  ambas- 
sador of  the  diplomacy  of  business,  but  who  has  earned  that 
title  by  the  success  with  which  he  aids  the  diplomatic  credit 
man  in  the  home  office  to  secure  payments  on  doubtful 
accounts. 

After  analyzing  many  of  their  most  troublesome  accounts. 


\\ ' 


284 


NEW   COLLECTION   METHODS 


some  houses  have  decided  that  a  lack  of  knowledge  of  busi- 
ness is  one  of  the  most  frequent  causes  of  failure  to  pay. 
The  customer  does  not  lack  good  intentions,  but  he  either 
does  not  know  the  source  of  his  weakness,  or  he  does  not 
feel  it  strongly  enough  to  be  willing  to  reform.  Frequently 
a  word  spoken  in  season,  particularly  if  it  comes .  from  the 
man  who  checks  his  orders  for  shipment,  and  at  a  time  when 
the  customer  is  asking  some  favor,  will  do  a  world  of  good. 
Sometimes  a  series  of  suggestions  extended  over  a  period  of 
years  is  necessary  in  order  to  root  out  established  bad  habits. 
What  is  most  needed?  That  depends.  Perhaps  it  is  educa- 
tion in  the  principles  of  credit,  carried  on  in  letter  after 
letter;  perhaps  it  is  an  accounting  system  that  will  show  the 
merchant  where  he  stands ;  perhaps  it  is  conservative  buying ; 
perhaps  it  is  better  collection  methods ;  perhaps  the  merchant 
has  been  trying  to  run  a  real  estate  business  and  a  shoe  busi- 
ness at  the  same  time,  and  needs  to  get  rid  of  one  or  the 
other. 

Helping  the  Customer  to  Help  Himself 

The  story  of  the  experience  of  one  famous  manu- 
facturing firm  with  the  installation  of  a  constructive  credit 
policy  is  worth  telling  in  their  credit  man's  own  words.  "We 
had  an  account  in  Indiana,'*  said  the  credit  man,  "a  good 
fellow  personally  but  he  couldn't  pay  us.  I  said  to  our  presi- 
dent, 'Why  couldn't  we  hire  somebody  to  put  Jones's  busi- 
ness on  a  decent  foundation?  Isn't  Morris — one  of  our  sales- 
men— ^the  very  man?'  Our  president  agreed  with  me  and 
sent  Morris  down  to  this  town.  The  merchant  owed  us 
seven  or  eight  thousand  dollars.  Morris  sized  up  the  situa- 
tion and  made  up  his  mind  that  the  business  opportunity  was 
good,  but  that  the  owner  would  never  make  a  success.  So 
he  conducted  a  big  sale,  and  through  his  knowledge  of  the 
trade,  found  a  buyer  for  the  business.     Morris  used  to  be  a 


CONSTRUCTIVE   CREDIT  WORK 


285 


successful  merchant  in  our  line  before  becoming  a  salesman. 
Now  we  are  using  him  more  and  more  for  this  kind  of 
work.  If  a  customer  is  honest  and  has  ability,  Morris  can 
help  him  out.  He  knows  store  systems;  he  knows  how  to 
conduct  sales;  and  if  a  man  needs  stirring  up,  by  a  campaign 
of  publicity,  he  knows  how  to  put  that  on  for  him,  too. 

"In  the  old  days,  in  some  businesses  I  know,  the  sales  and 
credit  departments  were  constantly  at  loggerheads.  The 
credit  manager  was  often  a  sour  old  fellow  who  had  been  at 
the  job  for  many  years  and  had  found  the  easiest  thing  he 
could  do  was  to  turn  down  orders.  If  that  was  all  my  job 
as  credit  man  amounted  to,  I  wouldn't  take  it.  There  would 
be  nothing  constructive  in  it.  But  to  get  hold  of  a  concern 
that  needs  guidance  and  to  direct  it  so  that  its  owner  can 
make  something  of  himself— that  is  the  only  real  fun  in 
being  a  credit  man. 

"We  consider  now  that  our  business  is  to  make  merchants 
out  of  storekeepers.  Our  salesmen  have  become  enthusiastic 
over  it,  though  not  without  some  difficulty.  One  of  our  sales- 
men said  that  his  job  was  to  sell  goods,  not  to  sell  advertis- 
ing, but  he  came  around  to  the  right  point  of  view.  And 
the  other  day  he  told  me,  with  a  chuckle,  'On  this  trip  I  sold 
a  man  $2,000  worth  of  goods  and  $4,000  worth  of  advertis- 
ing,' meaning  that  he  had  persuaded  a  customer  to  take  on  a 
campaign  of  advertising  that  would  mean  sales  of  $4,000  to 

him. 

"We  make  money  by  following  out  policies  like  this,  but 
that  is  not  so  important.  It  is  really  carried  on  at  very  little 
expense,  but  even  if  it  cost  us  more,  we  should  be  glad  to  do 
it.    We  are  helping  people  help  themselves." 

Pulling  a  Gun  on  the  Overdue  Customer 

"When  we  have  trouble  in  collecting,"  said  the  vice- 
president  of  a  well-known  jobbing  house,  "I  believe  in  pull- 


i; 


286 


NEW    COLLECTION    METHODS 


ing  a  gun  on  the  customer.  And  I  want  to  show  you  the 
gun  that  I  pull.  He  is  one  of  my  assistants  in  the  credit 
department  who  is  so  full  of  ability  to  help  the  retail  mer- 
chant out  of  trouble  that  I  keep  him  on  the  road  now  more 
than  half  the  time,  attending  to  difficult  cases.  When  he  has 
once  pulled  a  dealer  through  the  thick  of  some  trouble  or 
other,  that  man  can  be  handled  by  mail  in  the  future.  And 
the  personal  friendly  acquaintance  he  acquires  while  on  the 
road  gives  him  an  immense  advantage  in  getting  in  the  money 
from  nearly  all  our  trade.  I  went  through  some  of  the  same 
experience  myself,"  concluded  the  vice-president,  "and  in  case 
of  real  need,  I  pack  my  bag  and  jump  on  the  train  to  talk 
things  over  with  a  customer  who  is  in  difficulty." 

Choosing  the  Right  Medicine 

It  must  not  be  thought  that  these  constructive  dealers  in 
credit  pick  up  a  slow  and  helpless  account  and  nurse  it  along. 
In  their  judgment  to  prolong  the  life  of  a  business  consump- 
tive is  little  short  of  criminal.  But  the  eye  of  a  skilled  credit 
man  can  detect  the  indications  of  healthy  life,  where  these 
exist,  and  diagnose  the  case  properly. 

In  a  Dakota  city  lives  a  customer  of  a  certain  manufac- 
turer who  has  done  business  with  them  for  fifteen  years  and 
for  fifteen  years  has  been  slow  pay.  His  father-in-law,  who 
was  his  predecessor,  had  likewise  been  slow  pay  for  nearly  as 
long  a  period.  In  March,  191 5,  their  financial  statement 
showed  such  a  financial  condition  that  the  manufacturer 
wrote  the  following  letter: 

Gentlemen : 

We  acknowledge  receipt  of  your  letter  of  the  27th  in  which  you 
enclose  a  statement  of  your  affairs  showing  total  assets  $62,553,  liabili- 
ties $19,825.98,  and  a  net  worth  of  $42,727.02. 

A  comparison  of  these  figures  with  those  of  February  II,  1914, 
shows  a  loss  of  $11,295.98.    In  addition  you  have  valued  the  land  in 


CONSTRUCTIVE   CREDIT  WORK 


287 


Colorado  at  $7,500,  whereas  a  year  ago  you  valued  it  at  $6,400,  so 
that  your  actual  loss  is  $12,395.98. 

Your  percentage  of  indebtedness  has  increased  from  22.7  to  31.7. 
Your  sales  have  decreased  $11,000;  however,  your  expenses  remain 
about  the  same. 

Your  stock  of  merchandise  is  unreasonably  high  and  until  it  is 
reduced  to  at  least  66  2/3  per  cent  you  will  find  it  difficult  to  make  any 
net  profit  in  cash.  You  ought  to  start  a  special  sale  and  not  discon- 
tinue it  until  your  stock  reaches  $15,000.  This  is  a  difficult  matter  to 
accomplish,  but  the  sooner  you  take  your  loss  the  better.  If  we  can 
be  of  any  help  to  you  in  writing  your  advertising,  or  in  planning  your 
sale,  we  shall  be  pleased  to  do  what  we  can. 

We  assume  that  you  have  not  given  any  security  for  the  notes  to 
banks  and  relatives,  but  should  like  to  have  your  assurance  in  this 
regard. 

Yours  truly. 

Despite  this  vigorous  call  to  order,  however,  matters 
dragged  along  until  in  July  the  manufacturer,  having  added 
a  field  expert  to  his  staff,  sent  him  out  to  Dakota  to  look  the 
ground  over.  The  "ambassador"  found  a  pair  of  honest 
and  capable  merchants  doing  business  on  wrong-headed  prin- 
ciples and  stubbornly  sticking  to  them.  His  letter  analyzing 
the  position,  which  now  lies  in  the  files  of  the  house,  reads 
as  follows: 

Gentlemen : 

In  reference  to  of  ,  the  condition  there 

has  come  from  trying  to  carry  stock  in  all  grades  of  merchandise 
from  the  cheapest  and  up,  and  then  not  making  a  whole-hearted  clean- 
up after  each  season. 

Then  they  have  the  idea  that  it  was  necessary  to  carry  a  $40,000 
stock  to  do  a  $50,000  business,  for  fear  some  trade  would  get  away. 
They  keep  a  neat,  clean  store  and  their  stock  is  in  good  condition, 
only  it  is  $20,000  too  big,  even  for  a  $50,000  annual  business. 

They  are  fine  advertisers  of  our  merchandise,  using  our  cuts 
and  display  matter  right  through  the  selling  season,  but  their  efforts 
during  the  dull  seasons  have  never  been  very  enthusiastic,  because 
they  have  been  doing  all  they  can  to  depreciate  the  sales  end  of  it, 
even  to  running  advertisements  about  the  evil  of  sales. 

They  say  they  are  paid  up  on  spring  bills,  except  ours,  and  a 
bill  of  summer  stuff  not  due,  and  if  they  can  do  any  July  and  August 


-4  i 


288 


NEW  COLLECTION  METHODS 


?i 


business  they  can  clean  it  all  up.  They  have  only  $7,000  bought  in 
all  for  fall  and  by  keeping  their  future  buying  to  this  limit  for  the 
next  two  seasons,  they  can  reduce  down  to  something  near  normal 
and  they  say  they  will  carry  out  our  suggestions  during  the  next 
year  and  find  out  if  we  are  right.  They  think  their  expense  will 
be  a  thousand  less  this  year.  If  so,  they  will  break  about  even  if 
they  do  around  a  $40,000  business. 

Local  prospects  for  fall  business  are  very  good,  providing  they 
can  harvest  the  crop  in  sight.  The  wet  weather  which  has  con- 
tinued during  the  past  thirty  days  is  doing  a  great  deal  of  damage 
now  and  has  made  business  very  quiet  for  all  lines. 

Yours    truly, 

What  this  letter  does  not  say  is  that  the  traveling  repre- 
sentative talked  tactfully  for  two  days  to  the  stiff-necked  busi- 
ness men  and  that  by  the  end  of  that  time  they  saw  the  error 
of  their  ways.  By  an  energetic  sale,  they  cut  down  their 
stock  to  $15,000  and  since  that  educational  experience  have 
discounted  every  bill. 

Taking  an  Inventory  of  the  Debtor 

The  choice  between  "insolvency,  insincerity,  and  instal- 
ments" was  made  by  one  famous  jobbing  house  at  the  request 
of  a  territorial  manager,  who  thus  instituted  a  policy  which 
has  been  continued  ever  since.  The  account  of  a  dry-goods 
man  in  Colorado  was  so  far  overdue  that  the  jobber,  in  con- 
jimction  with  other  large  creditors,  was  ready  to  proceed  to 
extremities  and  close  him  up.  But  the  territorial  manager 
had  a  strong  feeling  that  other  measures  might  be  even  more 
successful  and  persuaded  the  credit  department  to  let  him  get 
out  on  the  ground  and  see  what  could  be  done.  He  dis- 
covered after  inventory  and  analysis  that  a  crop  failure  in 
the  district  had  made  local  collections  impossible.  The  mer- 
chant had  $65,000  stock  and  $18,000  on  his  books.  The  total 
of  his  indebtedness  to  creditors  was  $26,000.  The  inventory 
showed  a  healthy  condition.  But  what  could  be  done?  It 
remained  to  inventory  the  merchant  himself  and  the  entire 


CONSTRUCTIVE  CREDIT  WORK 


289 


local  situation.  Unfortunately  the  first  inventory  showed  a 
total  lack  of  the  necessary  asset — courage.  The  dry-goods 
man  had  thrown  up  his  hands  in  despair.  Lacking  invention 
and  resource  in  himself  and  feeling  that  his  creditors  were 
on  his  back  like  a  pack  of  wolves,  he  had  sat  down  to  await 
the  inevitable. 

Thereupon  the  territorial  sales  manager  stripped  off  his 
coat  and  began  to  work.  The  second  part  of  the  "inventory" 
showed  that  in  one  part  of  his  territory  the  crop  failure  had 
been  only  partial.  The  problem  was  to  get  the  business 
where  the  business  existed.  The  stock  was  renovated  by  re- 
arranging and  a  little  judicious  buying.  A  new  store  front 
was  built  at  small  expense  with  a  loan  from  a  banker  whe 
was  encouraged  by  the  jobber's  interest.  And,  most  impor- 
tant of  all,  a  vigorous  campaign  of  direct-by-mail  advertising 
was  started  to  the  outlying  territory  using  simple  letters  and 
folders  gotten  out  by  the  local  printer,  giving  interesting  de- 
scriptions of  the  stock  and  offering  week-end  bargains. 

In  eight  months  the  stock  was  satisfactorily  reduced,  the 
bills  were  paid,  the  business  was  preserved,  and  the  merchant 
made  money  for  himself  and  the  far-sighted  jobber.  The 
"insolvency"  method  would  have  destroyed  his  stock ;  nobody 
would  have  paid  more  than  twenty  cents  on  the  dollar  for  it. 
The  merchant  himself  would  have  had  nothing  out  of  it,  and, 
being  too  old  to  start  in  over  again,  would  have  gone  to  the 
poor  house. 

Analysis  on  the  Spot 

The  same  jobbing  house  had  another  similar  experience 
with  a  merchant  whose  showing  was  decidedly  bad.  The 
credit  man  had  determined  to  close  him  up.  But  again,  the 
efficiency  expert  came  to  the  front,  saying,  "That  man,  I 
believe,  is  good.  Let  me  go  down  and  see."  The  credit 
manager  reluctantly  agreed  to  give  him  a  chance,  but  warned 


III 


290 


NEW  COLLECTION  METHODS 


CONSTRUCTIVE   CREDIT  WORK 


291 


m 


the  efficiency  man  that  his  confidential  information  looked 
very  black  and  the  firm  owed  it  to  itself  to  take  prompt 
action.  But  as  is  often  the  case,  analysis  of  the  situation  on 
the  spot  disclosed  many  features  which  the  merchant  either 
could  not  or  would  not  entrust  to  a  statement  made  on  paper. 

The  merchant  himself,  instead  of  sticking  by  the  store, 
and  giving  it  the  benefit  of  his  constructive  energy,  had  been 
traveling  on  the  road  for  a  local  manufacturer,  leaving  all 
the  business  in  care  of  his  wife.  Moreover,  being  the  type  of 
man  who  likes  to  have  many  strings  to  his  bow  and  to  look 
on  himself  as  a  local  magnate,  he  had  tied  up  part  of  his 
capital  in  a  flour  business,  a  fact  quite  unknown  to  his  credi- 
tors. To  top  the  story,  his  wife,  being  a  little  timid,  had 
granted  credit  indiscriminately.  The  net  result  was  that, 
though  the  merchant's  record  had  been  good  in  the  past,  he 
now  had  with  this  jobber  alone  $1,300  past  due,  and  $600 
current. 

A  strong  advertising  campaign  was  the  medicine  recom- 
mended for  this  case.  It  reduced  his  stock  and  created  local 
interest  in  the  store.  The  merchant  stopped  his  outside  trav- 
eling, sold  his  flour  business,  and  began  to  have  a  vision  of 
the  opportunities  for  a  country  retailer.  In  four  months  his 
bills  were  paid.  But  what  was  of  vastly  greater  value,  he 
had  learned  the  force  of  constructive  advertising  and  in  a 
short  time  doubled  his  business.  Needless  to  say,  he  has  been 
a  good  customer  of  the  jobber  ever  since. 

A  Looted  Business 

Sometimes  a  credit  man  can  tell  a  story  of  a  business  so 
heavily  looted  by  its  own  proprietor  that  the  most  desperate 
efforts  of  financial  counselors  are  almost  in  vain.  One  man 
lifts  the  veil  from  the  operations  of  a  merchant  who  built  an 
expensive  house  in  southern  California  and  went  to  live 
there,  taking  out  so  much  money  from  his  Indiana  store  for 


living  expenses  that  the  manager  he  left  in  charge  couldn't 
make  the  business  go.  For  five  years  the  credit  manager  has 
been  nursing  this  house,  partly  because  the  business  has  pos- 
sibilities, partly  because  he  at  one  time  gave  advice  that 
failed  to  bring  results,  and  so  he  has  considered  himself 
bound  to  stand  by  the  ship.  Twice  a  year  the  field  expert 
has  visited  him  in  this  Indiana  town,  to  go  over  his  balance 
sheet  and  his  merchandise.  Lately,  he  has  sent  in  his  balance 
sheet  every  month  for  the  credit  man's  advice.  At  one  time 
he  owed  this  firm,  his  largest  creditor,  as  high  as  $15,000. 
But  at  last,  the  struggle  has  succeeded ;  the  firm  has  been  in- 
corporated with  the  manager  as  part  stockholder,  the  owner 
in  California  has  been  cut  down  on  his  "allowance,"  and  the 
store  is  on  a  paying  basis. 

Deceiving  a  "Silent  Partner" 

Another  story  of  a  hard  struggle  is  told  by  an  assistant 
credit  man  who,  beginning  as  a  successful  merchant,  and 
then  making  a  record  as  a  salesman,  was  taken  into  the 
credit  department  of  a  direct  selling  manufacturer. 

"The  business  I  am  going  to  tell  you  about  was  worth 
$85,000,  owned  by  a  banker  who  was  entrusting  all  the  con- 
duct of  affairs  to  his  partner.  The  store  was  constantly  be- 
hind with  everyone,  till  at  last  the  banker  asked  our  advice. 
I  went  down  on  a  New  Year's  day  and  the  banker  and  I  sat 
down  in  the  directors'  room  and  talked  things  over.  T  don't 
know,'  he  said,  'how  my  manager  will  take  it.'  However,  I 
suggested  that  he  take  me  up  to  the  store  as  an  efficiency 
man  who  travels  around  the  country  and  who  might  be  able 
to  give  some  suggestions. 

"The  manager  had  the  small-town  point  of  view.  He 
resented  what  he  called  my  attempt  to  *show  him  how  to 
run  his  business.'  In  a  few  minutes  I  saw  that  he  really 
knew  nothing  about  the  state  of  the  business  but  guessed 


•Vi: 


292 


NEW   COLLECTION   METHODS 


CONSTRUCTIVE   CREDIT  WORK 


293 


m^ 


w 


I 


: 


m 


I 


at  everything.  It  was  his  habit  to  buy  up  bankrupt  stock 
around  the  country  at  fifty  cents  on  the  dollar  and  then  sell 
it  at  full  price.  Where  is  the  rest  of  it?'  I  asked  him. 
*Is  any  of  it  still  lying  on  the  shelves?'  But  he  gave  an 
evasive  answer. 

"Next  morning  I  came  down  to  the  store  and  found 
the  manager  more  sullen  than  ever.  His  greeting  was,  'Are 
you  still  here?*  He  even  called  up  the  banker  and  told 
him,  'I  won't  tell  this  fellow  anything.  You  might  as  well 
send  him  home.'  Nevertheless,  I  looked  around  the  store 
a  little  that  morning  and  made  up  my  mind  about  a  few 
things  before  meeting  the  banker  at  lunch.  'Your  man- 
ager,* I  told  him,  'has  in  my  estimate  $20,000  less  goods 
than  he  should  have  to  make  you  safe.  More  than  that, 
I  believe  his  expense  is  running  up  close  to  thirty  per  cent. 
Then  too,  I  saw  seven  or  eight  clerks  wrapping  up  mer- 
chandise and  handing  money  to  the  cashier.  But  they  seem 
to  be  pretty  good  friends  of  some  of  their  customers  and 
I  doubt  if  you  are  getting  full  price  for  all  your  goods. 
Give  me  a  chance  to  take  actual  inventory  of  stock  and 
ril  find  out  the  truth.' 

"Then  the  manager  and  the  banker  locked  horns.  The 
manager  began  to  bluster.  He  called  for  a  division  of  the 
profits  and  an  immediate  dissolution  of  the  partnership, 
claiming  that  he  had  made  $20,000  and  saying  that  he 
would  be  content  to  take  his  ten  thousand  and  go.  But 
the  banker  refused,  because  on  the  basis  of  my  report,  he 
had  begun  to  think  there  might  be  a  loss.  Thereupon  the 
manager  discharged  the  clerks  and  locked  the  store  and 
came  down  to  the  hotel  to  accuse  me.  I  didn't  have  very 
much  to  say  to  him,  being  always  accustomed  to  do  more 
thinking  than  talking,  but  I  told  him  I  had  merely  been 
called  down  to  express  an  opinion  and  that  I  was  sorry  if 
matters  hadn't  turned  out  as  he  expected.     I  advised  him  to 


see  an  attorney  before  he  kept  that  store  locked  very  much 
longer.  The  attorney,  of  course,  told  him  to  open  up  as 
quick  as  he  could.     And  then  I  got  at  the  truth. 

"Well,  I  disposed  of  this  would-be  manager  for  $500. 
After  a  little  talk  he  reduced  his  first  claim  of  $10,000  to 
$5,000,  but  in  the  meantime  I  was  going  through  the  store, 
and  told  the  banker  to  hold  off.  He  was  willing  for  the 
sake  of  avoiding  trouble  to  give  the  manager  $1,000.  With- 
out saying  anything  as  to  the  amount,  I  went  down  to 
call  on  the  manager  the  next  night  with  a  lawyer  and  a 
pocket  full  of  cash.  We  had  a  little  conversation.  Then 
I  said  to  him,  'Your  partner  is  willing  to  do  the  right 
thing  for  you,  to  give  you  a  little  money  and  release  you 
from  all  liabilities.'  I  stood  up  by  the  parlor  table  and 
pulled  out  of  my  pocket  $500  in  five-dollar  bills  and  counted 
them  out  right  then  and  there.    Well,  he  took  them  and  left. 

"What  did  my  investigation  show?  It  showed  that  he 
was  short  $18,000.  His  expense  was  costing  him  32  per 
cent,  and  in  the  last  year  or  six  months  had  cost  38  per 
cent.  His  gross  profit  was  not  40  per  cent,  as  he  supposed, 
but  28  per  cent.  No  merchandise  in  the  store  was  sold  for 
the  marked  price. 

"Today  that  store  is  running  profitably.  The  banker 
knows  the  percentage  cost  of  every  item  in  the  store  and 
he  knows  just  whether  each  clerk  is  selling  enough  to  pay 
his  salary.     A  genuine  rock-bottom  analysis  of  the  business 

is  constantly  kept  up. 

"If  merchants  would  only  analyze,  they  could  find  out 
what  is  costing  them  money  and  what  is  making  them  money. 
One  of  our  customers  was  struggling  under  a  rental  costing 
14  per  cent  of  his  annual  sales.  Six  per  cent  I  consider 
high  and  4  per  cent  good.  Another  man's  clerks  were 
costing  him  14  per  cent,  where  they  should  not  have  cost 
him  more  than  6  to  8  per  cent." 


!  i  1 


294 


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CONSTRUCTIVE   CREDIT   WORK 


295 


Financial  Advice 

Advice  in  financing  can  often  be  given  by  the  credit 
manager  whose  familiarity  with  various  expedients  sends 
a  beam  of  light  through  clouds  that  look  like  a  cyclone 
to  the  less  experienced  merchant. 

The  familiar  fault  of  continual  overbuying  had  almost 
reduced  a  popular  young  merchant  to  extremities.  He 
had  begun  with  $10,000  capital  and  a  retail  following  that 
he  thought  would  stay  with  him  wherever  he  went.  His 
first  purchase  was  $15,000  of  stock  on  which  he  paid  $10,- 
000.  His  fall  purchases  were  $21,000.  In  October  the 
representative  of  the  credit  department  visited  him  and  asked 
how  much  stock  he  had  on  hand  and  ordered.  He  didn't 
know.  But  he  did  know  that  he  was  opening  boxes  all 
the  time  and  that  more  were  coming  in.  How  then  did 
he  expect  to  pay  $21,000  for  his  fall  purchases?  He  re- 
plied that  he  would  get  it  from  the  bank.  But  a  moment's 
conversation  showed  him  to  be  carrying  already  as  much 
as  the  local  bank  would  allow.  The  representative  of  his 
creditor  on  analysis  discovered  that  he  had  made  $28,000 
profit,  but  on  an  expense  of  26  per  cent,  which  was  too 
heavy.  However,  the  stock  was  all  new  and  no  depreciation 
was  necessary  in  the  estimate.  He  was  persuaded  to  in- 
corporate and  sold  a  heavy  block  of  stock  with  the  assis- 
tance of  his  friend,  the  expert.  The  latter  also  wrote  letters 
to  all  his  creditors,  for  he  was  being  sued  right  and  left. 
Last  but  not  least,  the  friendly  credit  representative  bolstered 
up  the  merchant's  courage,  told  him  he  had  something  in 
the  middle  of  his  back  besides  mush,  and  that  if  he  would 
stiffen  up  and  get  to  work,  he  could  pull  through.  The  re- 
sult is  a  prosperous  and  well-financed  business. 

Another  young  merchant  out  of  sheer  gratitude  for  the 
helpful  advice  he  had  received,  wrote  to  his  principal  creditor 
that  two  months  more  would  see  him  broken,  and  invited 


the  creditor  to  come  down  and  "get  his  first."  But  an  in- 
vestigation on  the  spot  showed  that  they  had  an  equity  of 
$7,000  above  their  debts,  the  only  misfortune  being  that 
a  large  amount  of  the  capital  was  tied  up  in  their  store 
building  and  in  a  home  which  this  man  owned.  His  mis- 
taken hypothesis  was  that  if  he  owned  these  buildings  he 
did  not  have  to  pay  rent,  and  so  he  saved  the  money.  It 
had  never  occurred  to  him  that  he  couldn't  pay  bills  with 
money  that  was  invested  in  buildings  and  real  estate. 

His  friends  and  the  bank  were  persuaded  to  take  over 
this  property  and  letters  were  written  to  his  creditors  stat- 
ing frankly  what  he  was  trying  to  do  and  asking  for  60 
days'  more  time,  telling  them  that  in  60  days  their  inter- 
ests would  at  least  be  in  no  greater  danger  than  they  were 
then.  Today  this  young  merchant  is  conducting  a  successful 
clothing  business. 

A  Striking  Success 

*T  wouldn't  want  to  tell  you  even  in  what  section  of 
the  country  this  man  was  located,"  said  the  wholesaler  who 
recounted  the  following  case,  "because  his  success  on  fol- 
lowing our  advice  was  so  spectacular  that  he  might  be 
recognized.  But  his  good  fortune  has  given  us  courage 
many  a  time  to  stick  to  what  we  know  are  right  principles. 

"Three  partners  opened  business  in  this  store  with  $6,- 
500.  One  of  them  was  a  wonderful  salesman.  They  did 
$24,000  the  first  year  and  then,  on  our  advice,  this  man 
bought  out  first  one  and  then  the  other  of  his  partners. 
Last  year  he  did  a  business  of  nearly  $200,000,  and  this  year 
he  will  better  that  by  a  hundred  thousand.  His  net  profit 
last  year  was  $22,000.  In  seven  years  he  has  actually 
earned  $100,000. 

"What  is  the  secret?  He  put  himself  unreservedly  in  our 
hands.     And  let  me  tdl  you  that  when  a  man  is  willing  to 


h 


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take  our  advice,  we  are  very  careful  to  give  him  the  best 
we  have.  He  is  a  man  of  charming  personality,  frank 
and  open-hearted,  and  takes  us  fully  into  his  confidence. 
He  was  guided  very  closely  by  our  advice  in  the  amount  and 
the  kind  of  his  purchases.  He  wanted  to  put  in  a  side  line 
of  other  merchandise,  but  we  advised  against  it  and  he 
kept  free  from  it.  Right  now,  we  are  laying  out  his 
windows  and  floor  plan  for  a  remodeled  building.  This  man 
has  the  real  sales  instinct,  and  he  has  shown  ability  to  learn 
merchandising  also. 

A  Good  Salesman  but  No  Business  Man 

"But  we  are  not  always  so  successful.  Here  is  another 
bundle  of  papers  that  tells  a  different  story  of  a  merchant 
who  was  a  marvelous  salesman  with  a  real  flair  for  our  line 
of  business.  He  always  overbuys  but  he  always  sells  his 
stock.  Nevertheless  he  does  not  know  how  to  finance  his 
undertakings,  and  he  has  finally  gone  in  so  deep,  we  do  not 
see  how  he  can  possibly  pull  out.  He  had  too  much  busi- 
ness for  his  capital.  Our  representative  camped  on  his 
groimd  and  got  his  father  to  invest  $3,000  in  the  business. 
But  even  that  isn't  going  to  work.  The  man  must  have  a 
partner  who  has  financial  sense  or  else  he  must  sell  out  and 
go  in  as  a  manager  in  a  department  in  this  line  in  another 
store.     I  rather  think  I  shall  advise  him  to  do  the  latter." 

Another  merchant  had  demonstrated  his  ability  by  open- 
ing a  successful  store  in  the  vicinity  of  a  competitor  whose 
business  was  declining.  "All  the  men  around  here  are 
carpenters,'*  he  explained,  "and  they  have  all  gone  into  the 
shipbuilding  industry."  But  his  lively  young  competitor  in 
the  same  district  was  actually  doing  too  big  a  business  for 
his  capital.  His  creditor's  admiration  was  aroused  to  such 
a  pitch  that  he  exhausted  every  device  to  increase  the  plucky 
merchant's  capital.     After  his  relatives  had  been  tried  and 


297 


found  wanting,  a  friend  was  discovered  who  indorsed  a  note 
for  him. 

"If  We  Had  Followed  Your  Advice  .  .  .  .  " 

A  jobber  handling  a  line  of  staple  goods  different  from 
the  one  mentioned  above,  tells  a  similar  story  in  which 
failure  resulted  from  a  merchant's  unwillingness  to  take  his 
creditor's  advice.  These  were  cousins  in  a  Middle  Western 
city  who  became  real-estate  crazy.  Despite  their  surplus  of 
several  hundred  thousand  dollars,  they  borrowed  more  and 
put  the  whole  sum  into  land  operations.  Their  capital  and 
their  energy  were  so  tied  up  that  we  advised  them,  'Get 
out  of  one  business  or  the  other.' 

"At  last  they  sent  us  an  order  for  a  large  amount  which  I 
refused  to  send  to  our  factory  because  I  knew  they  wouldn't 
last.  They  did  sell  one  piece  of  land  at  a  great  sacrifice 
to  help  me  out  and  by  careful  work  I  got  their  accounts 
with  us  down  to  a  few  hundred  before  they  failed.  Today, 
though  successful  in  another  line  of  business,  they  tell  us, 
'We  know  our  mistake,  and  wish  we  had  taken  your  ad- 


vice. 


*  if 


Getting  the  "Big  Head" 

Overbuying  and  eagerness  to  extend  the  business  too 
rapidly,  especially  by  starting  a  chain  of  stores,  are  the  two 
business  mistakes  which  one  traveling  credit  representative 
is  constantly  fighting.  He  has  notes  in  his  diary  about  two 
partners  who  began  in  a  western  city  with  $5,000  and  by 
dint  of  wonderful  advertising  made  $90,000  sales  in  the 
first  year.  Instantly  the  rainbow  vision  came  before  them 
of  similar  establishments  making  hard  cash  out  of  thin  air  in 
other  cities.  They  started  a  chain  of  stores  against  the 
advice  of  their  creditors.  But  being  unable  either  to 
finance  them  or  give  them  proper  supervision,  they   failed 


298 


NEW  COLLECTION   METHODS 


CONSTRUCTIVE   CREDIT  WORK 


299 


■1  ^ 


n 


1 1'. 

.( 

1 


« 


«T> 


first  in  one  city,  then  in  another,  and  finally  in  the  city 
where  their  first  growth  had  been  so  promising.  This  sad 
result  was  partly  due  to  a  slump  in  local  business  conditions 
which  struck  them  amidships  as  they  were  trying  to  bring 
their  venture  into  port  under  a  spread  of  sail  too  large 
for  their  ballast. 

A  Credit  Man's  Working  Program 

A  working  program  provided  by  the  credit  man  for  a 
merchant  of  limited  experience  is  described  in  the  story 
of  a  retailer  in  Arkansas,  who  began  with  $2,500  capital 
saved  from  clerking  for  many  years.  His  wife  mortgaged 
the  home  given  them  by  her  father  for  $1,500.  A  thousand 
dollars  went  into  fixtures,  another  thousand  into  charge 
accounts,  and  at  the  end  of  the  year  the  man  owed  $8,000. 

I  can't  make  it  go,"  he  said  despairingly  to  the  credit  man. 

ril  have  to  take  the  loss  of  my  savings  of  a  lifetime  and 
go  back  to  clerking."  "Don't  give  up,"  advised  the  credit 
man.  **You  can  borrow  some  money  and  with  our  help 
persuade  your  creditors  to  give  you  a  chance."  Through 
a  second  mortgage  on  his  home,  he  raised  a  thousand  dollars 
and  arranged  with  his  creditors  to  pay  back  $100  a  week. 
An  active  merchandising  program  involving  a  rousing  sale, 
strong  advertising,  and  an  increased  volume  of  business  at  a 
lower  price  enabled  him,  to  his  own  amazement,  to  repay  his 
bank  and  to  hand  over  to  his  creditors  $300  a  week. 

Applying  the  Rod 

While  the  constructive  credit  manager  is  willing  to  "go  the 
limit"  with  a  customer  who  shows  a  disposition  to  work  with 
him,  he  must  be  equally  ready  to  apply  the  penalty  for 
unwillingness  to  co-operate.  One  of  the  most  popular  men 
in  a  small  town  in  Minnesota  took  over  the  business  of  his 
father,  who  had  always  discounted  his  bills.     But. the  popu- 


larity of  the  son  was  the  undoing  of  the  business.  He  re- 
lied so  much  on  his  friendships  and  so  little  on  efficiency  that 
his  patrons  began  to  buy  from  his  competitor.  The  credit 
man  remonstrated  and  finally  sent  down  a  personal  repre- 
sentative, who  wrote  back  confidential  advice  to  hold  back 
all  orders  until  the  merchant  promised  to  reform.  This 
drastic  action  was  thoroughly  explained,  with  the  result  that 
the  merchant  at  last  accounts  was  struggling  to  turn  over  a 
new  leaf. 

Sometimes  the  credit  man  sadly  sees  his  own  judgment 
vindicated  in  the  ruin  of  an  unruly  merchant.  Two  partners 
in  a  western  New  York  store  after  several  years  of  moder- 
ately good  business  grew  impatient  with  the  rate  at  which 
their  wealth  was  advancing  and  decided  that  their  city  owed 
them  a  living.  Their  operating  expense  under  the  influence 
of  this  new  gospel  crept  from  18  to  28  per  cent,  and  when 
the  credit  man  came  down  to  look  things  over,  he  found  that 
each  was  drawing  $4,200  a  year  out  of  the  store.  "No, 
this  won't  break  us,"  they  said  in  explanation.  "When  we 
began  doing  business,  we  gave  merchandise  away,  at  prices 
that  were  far  too  low.  Now  we  find  that  people  know 
nothing  about  values  and  so  we  are  simply  getting  more  for 
our  goods."  The  rest  of  the  story  is  that  the  credit  man 
saved  himself,  but  the  experiment  of  the  two  partners  in 
trying  to  pull  their  profits  up  by  their  boot  straps  kept  them 
out  of  the  hands  of  the  sheriff  for  just  two  years  longer. 

Constructive  Advice  at  Time  of  Sale 

Suppose  you  never  gave  a  man  advice  with  regard  to 
credit  unless  he  owed  you  money,  wouldn't  he  begin  to 
suspect  that  your  interest  in  his  prosperity  had  a  decidedly 
selfish  angle?  So  reasons  the  best  type  of  credit  manager, 
who,  recognizing  that  collection  has  a  permanent  place 
in   his  marketing  plan,   makes   use   of   inserts   and   special 


!■! 


I 


W 


ili 


300 


NEW   COLLECTION   METHODS 


articles  at  the  time  of  sale  and  not  only  at  the  time  of 
collection.  Edward  M.  Skinner,  general  manager  of  Wilson 
Brothers,  Chicago,  made  use  of  the  following  significant 
and  patriotic  appeal  in  the  January  19 18  issue  of  the  cata- 
logue of  his  house: 

Dear  Sir: 

May  we,  in  this  foreword  to  our  Spring  and  Summer  1918 
Catalogue,  say  just  a  word  with  reference  to  our  industry  (Men's 
Furnishing  Goods)  and  its  relation  to  the  U.  S.  Government,  and  its 
successful  conduct  of  the  War? 

All  industry,  either  during  peace  or  war,  can  only  exist  through 
having  both  sufficient  supply  of  coal  and  efficient  and  reliable  trans- 
portation. 

Our  railroads  have  not  been  able  for  very  good  and  sufficient 
reasons  to  keep  up  to  standard  either  their  motive  power  or  cars ;  the 
great  strain  of  immensely  increased  tonnage  will  further  reduce  their 
service. 

As  to  coal;  it  is  evident  it  will  go  first  to  the  railroads,  and 
second,  to  those  industries  whose  entire  production  is  for  war  pur- 
poses, and  while  our  output  for  the  year  will  be  50,000,000  tons  ahead 
of  191 6,  the  supply  will  fall  short  of  requirements  by  an  equal  amount. 

The  Government  has  been  able  so  far  to  spend  only  about  one- 
half  of  its  war  appropriations  because  of  its  inability  to  secure  labor. 

It  seems  evident  to  us,  therefore,  that  as  we  become  seriously  in 
earnest  in  equipping  our  men  for  our  part  in  the  war,  peace  indus- 
tries will  be  forced  to  greatly  curtail  or  discontinue  the  use  of  Coal, 
Transportation,  and  Labor. 

If  our  analysis  of  the  situation  is  correct  and  meets  with  your 
views  should  we  not,  both  you  and  ourselves,  immediately  eliminate 
from  our  stocks  absolute  non-essentials  and  as  fast  as  possible  reduce 
our  merchandise  and  confine  our  operations  to  that  part  of  our 
business  that  is  at  least  most  essential? 

It  seems  to  us  this  is  not  only  good  patriotism,  but  good  business. 

So  far  it  has  been  left  to  the  merchants  and  manufacturers  to 
decide  for  themselves  what  are  the  essentials  and  non-essentials,  and 
many  of  the  oldest  and  best  advised  manufacturers  have  already  con- 
centrated on  either  war  work  or  on  staple  goods  only. 

Will  we  not  in  our  industry  have  a  better  chance  of  ultimate 
survival  as  a  distributer  of  essentials,  if  we  promptly  concentrate  on 
merchandise  that  will  have  "merit  in  service  and  will  be  attractively 
styled  without  extravagance"? 


CONSTRUCTIVE   CREDIT  WORK 


301 


We  submit  these  views  with  our  thanks  for  your  continued  sup- 
port and  our  desire  for  your  co-operation  and  your  views. 

Yours  very  truly, 

Another  instance  of  the  constructive  interest  of  this 
house  in  its  dealers*  welfare  is  displayed  in  the  following 
letter  which  warns  the  dealer  to  take  his  price  advance  at  the 
time  the  market  goes  up.  The  especial  pertinence  of  this 
letter  is  that  the  failure  of  merchants  to  take  the  action  it 
advocates  has  diminished  their  capital  and  is  forcing  them  to 
ask  their  creditors  for  more  time. 


Dear  Sir: 


How  a  merchant  can  make  a  net  profit 
on  every  sale  and  still  "go  broke." 


An  actual  occurrence 

A  man  bought  a  retail  grocery  business  for  $8,000  cash.  In 
eighteen  months  he  had  a  stock  of  $14,000  and  owed  $6,000,  and  had 
practically  the  same  stock  with  which  he  started. 

And  yet  every  article  sold  had  been  at  a  satisfactory  net  profit. 

How  did  it  come  about? 

This  illustration  of  only  one  article  in  the  stock  will  show. 

In  this  stock  were  two  cases  of  condensed  milk  for  which  he  paid 
8c  a  can  and  sold  for  loc,  the  gross  profit  being  2c,  the  expense  of 
15%  on  selling  price  (expense  in  grocery  business  is  less  than  in 
ours)  was  i>4c,  leaving  a  net  profit  of  ^c  on  every  can. 

Now  if  this  merchant  had  been  closing  out  his  business  he  would 
have  had  his  money  back,  his  expense,  and  a  profit,  but  he  is  con- 
tinuing in  business  and  must  replace  the  two  cases  of  milk. 

But  the  price  had  gone  up  to  12c  a  can. 

He  only  received  loc  and  has  to  pay  12c. 

Where  did  he  get  the  2c? 

Another  instance: 

A  drygoods  merchant  sold  his  entire  stock  of  goose  feathers, 
for  which  he  had  paid  65c  a  lb.,  at  90c  a  lb.,  making  a  profit  on  every 
pound  of  25c. 

Now,  as  in  the  other  case,  if  he  were  closing  out  his  business 
he  would  do  so  profitably  on  this  basis,  but  at  the  very  time  he  sold 
his  stock  at  90c  a  lb.  it  would  cost  him  $1.35  to  replace  every  pound. 

The  45c  a  lb.  was  an  absolute  loss  and  had  to  be  taken  from 


'   ! 


302 


NEW  COLLECTION   METHODS 


accumulated  capital,  or  had  to  be  borrowed,  or  would  be  an  indebted- 
ness. 

The  answer  is  that  unless  a  merchant  sells  an  article  at  a  price 
that  would  enable  him  to  replace  the  article  and  have  a  net  profit 
over  his  expenses,  he  is  losing  money. 

Hundreds  of  merchants  are  doing,  and  have  been  doing,  this 
same  kind  of  merchandising,  and  will  surely  come  out  as  this  erocer 
did.  * 

Yours  very  truly, 


5< 


-til 


CHAPTER    XXVIII 

MORE     CONSTRUCTIVE  CREDIT  WORK 

Co-operation  With  Customers 

If  any  efficiency  department  is  conducted  to  ^ve  advice 
to  merchants,  shall  it  operate  under  the  wing  of  the  credit 
department  or  the  sales  department?  The  latter,  reply  some 
executives,  because  when  a  merchant's  volume  of  business 
with  us  is  low,  the  salesman  can  very  reasonably  get  after 
him  to  help  increase  his  efficiency  and  his  purchases  together 
without  saying  anything  unpleasant  about  his  credit  situation. 
At  the  same  time  we  may  know  very  well  that  our  sales  to 
him  are  small  because  the  credit  department  is  keeping  them 
so.  The  question  is  merely  as  to  whether  a  salesman  or  a 
credit  man  can  make  the  more  tactful  approach.  Others 
reply  that  the  credit  department  is  the  proper  branch  of  the 
house  to  send  out  helpful  suggestions  or  personal  representa- 
tives, because  in  most  cases  what  is  needed  is  not  only  more 
energetic  salesmanship  but  better  accounting  and  financing, 
and  above  all,  better  retail  collection.  Both  branches  should 
co-operate,  reply  still  others;  and  here  perhaps  is  the  true 

answer. 

Hart,  Schaffner  and  Marx  will  tell  you  they  have  no 
difficulties  in  obtaining  co-operation  between  credit  and  sales 
because  both  functions  are  handled  by  the  same  executives. 
Their  field  representatives  who  wrestle  with  the  retailers' 
problems  are  skilled  in  advertising  and  sales  and  also  in 
credit,  collection,  and  financing,  and  the  "dealer  helps"  of 
this  house  include  a  well-equipped  advertising  service  for 
retailers,  bookkeeping   forms,   and  the  well-known  booklet, 

303 


304 


NEW   COLLECTION   METHODS 


MORE  CONSTRUCTIVE  CREDIT  WORK 


30s 


N 


*; 


11  : 


■I 


"What  Do  You  Know  About  Your  Business?"  prepared  by 
H.  R.  Kern  of  the  credit  department. 

From  whatever  angle  the  need  of  the  merchant  for  con- 
structive advice  may  appear,  it  is  certain  that  the  need  of 
the  seller  is  always  the  same,  whether  that  need  is  felt  most 
acutely  by  the  sales  or  by  the  credit  department.  Both  want 
to  sell  the  merchant  more  and  always  more  goods.  Neither 
wants  to  sell  him  one  penny's  worth  more  than  he  can  dis- 
pose of  to  advantage.  When  the  credit  manager  turns  down 
an  order  sent  him  by  the  sales  department,  he  ought  to  be 
able  to  say  with  utter  truthfulness,  "This  hurts  me  as  much 
as  it  hurts  you." 

The  Traveling  Representative 

Suppose  a  merchant  has  put  an  unproductive  department 
into  one  of  the  best  positions  in  his  store,  and  is  crowding 
a  potential  profit-maker  into  an  obscure  corner.  He  ought  to 
have  an  accounting  system  that  would  warn  him  of  the  high 
rental  cost  and  low  returns  of  the  former,  even  if  his  imagin- 
ation is  not  equal  to  grasping  the  possibilities  of  the  latter. 
Now,  how  is  this  to  show  on  his  financial  statement  sent 
through  the  mails  to  the  credit  man?  But  the  traveling 
representative  on  the  ground  can  discover  the  difficulty.  If 
he  brings  the  money-making  department  into  the  sphere 
where  sales  are  more  possible,  then  his  house  sells  a  larger 
volume  of  goods  to  the  merchant,  who  in  turn  makes  an  in- 
creased profit,  and  everyone  is  benefited  by  the  simple 
change. 

Or  suppose  that  the  salesman  is  "called  off"  from  his 
visit  to  a  certain  merchant  because  the  credit  limit  has  been 
reached  and  the  payment  of  certain  invoices  is  long  overdue. 
Again  the  traveling  representative  may  discover — what  is 
ahnost  always  true  in  such  cases — that  the  merchant  has  no 
system  of  collections  worthy  the  name  and  that  what  he 


needs  is  tactful  explanation  of  how  to  install  such  a  system 
without  driving  away  trade. 

The  field  representative  will  pay  his  way  with  a  far 
greater  number  of  houses  than  at  present  employ  his  services. 
Such  men  are,  it  is  true,  rare ;  rare  in  their  expert  knowledge 
of  retail  merchandising,  rarer  still  in  the  tact  that  can  avoid 
arousing  antagonism,  in  the  cheery  energy  that  puts  life  into 
a  despondent  heart,  and  in  the  kindly  sympathy  that  inspires 
confidence.  Nevertheless,  such  men  can  be  found.  All  honor 
to  them  and  to  their  work! 

The  house  which  cannot  employ  a  special  representative 
for  such  work  has  still  the  members  of  its  credit  and  sales 
department  who  can  take  an  occasional  trip  to  study  the 
needs  of  a  case  on  the  grounds.  Moreover  an  enormous 
amount  can  be  done  through  special  pages  in  the  catalogue, 
articles  in  the  house  organ,  special  bulletins,  folders,  inserts, 
letters,  etc.  The  house  organ  of  Eaton,  Crane  and  Pike 
Company,  lives  up  to  its  title  "Pull-Together,"  by  publishing 
articles  suggesting  improved  methods  of  accounting,  etc.,  as 
well  as  sales  methods  that  mean  immediate  increased  revenue. 
This  is  but  one  house  organ  example  out  of  many. 

Illustration  of  a  Constructive  Program 

The  constructive  program  of  the  B.  F.  Goodrich  Com- 
pany is  indicated  in  the  following  excerpts  from  a  letter 
written  to  the  author  by  its  credit  manager,  V.  I.  Monten- 
yohl.  Personal  acquaintance  is  upheld  as  the  best  basis  for 
credit,  and  the  opportunities  thus  afforded  for  advising  the 
dealer  about  his  business  are  grasped  by  credit  department 
and  sales  department  alike.  This  company  has  districted  the 
country,  and  intends  "to  have  a  credit  department  representa- 
tive within  a  few  hours*  ride  of  practically  all  our  cus- 
tomers." The  manager  looks  forward  to  the  time  when 
"practically  no  collections  will  be  made  by  mail." 


Ml 
Lt' 


t"' 


306 


NEW   COLLECTION   METHODS 


In  those  cases  where  it  is  impossible  for  us  to  have  a  repre- 
sentative call  on  the  customer,  we  have  tried  to  have  all  accounts 
closed  on  our  books  at  the  expiration  of  90  days  after  the  term  of 
sale.  Of  course,  this  period  varies,  depending  upon  circumstances, 
but  the  general  average  will  be  very  close  to  the  period  named.  If 
at  the  end  of  that  time  our  efforts  are  without  results,  the  accounts 
are  referred  to  attorneys  for  attention.  This  procedure  will  apply 
to  a  large  number  of  accounts  of  comparatively  small  amount.  We 
endeavor  to  form  a  personal  acquaintance  and  influence  with  the 
customer  and  we  are  glad  to  be  able  to  report  that  the  results  have 
been  very  satisfactory. 

We  are  anxious  to  increase  the  amount  of  work  which  we  have 
been  doing  in  this  connection.  We  aim  to  have  a  personal  acquaint- 
ance with  as  many  of  our  customers  as  is  possible.  To  accomplish 
this  we  have  the  entire  country  divided  into  districts.  In  each  dis- 
trict territory  we  maintain  a  fully  equipped  credit  organization.  At 
the  present  time  we  have  fifteen  organizations  of  this  kind  and  some 
of  them  control  territories  comprising  several  states.  We  are  now 
establishing  in  the  larger  territories  subordinate  credit  departments 
at  points  which  are  advantageously  located  and  these  departments 
will  operate  under  the  supervision  of  the  main  credit  department  in 
each  territory.  We  are  doing  this  solely  to  get  our  credit  representa- 
tives nearer  to  the  customers  with  the  idea  of  strengthening  our  in- 
fluence due  to  the  closer  acquaintance  which  can  be  more  readily 
formed.  We  hope  when  conditions  permit,  to  have  a  credit  depart- 
ment representative  within  a  few  hours'  travel  of  practically  all 
our  customers. 

The  constructive  work  which  can  be  done  by  the  district  credit 
man  is  one  of  the  chief  considerations.  If  we  can  gain  a  personal 
knowledge  of  a  prospective  customer  or  additional  information  re- 
garding an  old  one,  we  are  able  many  times  to  accept  new  business, 
which  we  would  ordinarily  refuse,  to  increase  old  lines  of  credit. 
Again  we  often,  simply  through  our  personal  acquaintance,  influence 
a  customer  to  discount  our  bills,  and  as  the  discount  is  usually  a 
liberal  one,  it  means  a  considerable  saving  to  him  and  makes  it  un- 
necessary for  us  to  solicit  payment  either  in  person  or  by  corre- 
spondence. We  are  looking  forward  to  the  time  when  practically 
no  collections  will  be  made  by  mail.  In  this  connection,  we  are 
greatly  assisted  by  our  sales  representatives  who  have  come  to  realize 
that  a  past-due  account  defeats  their  sales  efforts.  Both  the  sales 
and  credit  departments  are  co-ordinating  their  efforts  to  secure  the 
best  class  of  customers,  considered  from  the  angle  of  the  greatest 
good  to  the  corporation. 

In  some  instances  the  sales  department  is  not  always  able  to 


MORE   CONSTRUCTIVE  CREDIT  WORK 


307 


sell  a  concern  whose  responsibility  is  unquestioned  and  is  obliged  to 
secure  orders  from  concerns  with  limited  capital.  In  those  cases  we 
help  them  by  an  "on  the  ground"  investigation  and  an  acquaintance 
with  the  prospective  customer.  In  this  way  we  have  found  it  pos- 
sible to  accept  business  from  many  concerns  whose  orders  would  be 
refused  if  our  representatives  simply  sat  at  their  desks  and  dealt  Tvith 
facts  as  contained  in  the  commercial  agency  reports*  On  the  other 
hand,  we  frequently  experience  difficulty  in  adjusting  an  account  by 
correspondence  and  are  obliged  to  solicit  the  aid  of  the  salesman 
who  regularly  calls  on  the  concern. 

The  representatives  in  both  the  sales  and  credit  departments 
appreciate  the  fact  that  "a  dead  customer  pays  no  dividends"  and  as 
long  as  there  is  a  possibility  of  doing  a  satisfactory  business  with  a 
customer,  we  continue  our  efforts  to  make  that  business  an  actuality. 
We  realize  that  there  is  a  tremendous  amount  of  work  to  do  along 
these  lines  as  we  carry  an  average  of  60,000  accounts  on  our  books 
at  all  times  and  the  conditions  are  constantly  varying.  Customers 
who  were  formerly  prompt  pay,  are  not  now  and  other  customers 
whose  accounts  we  have  watched  carefully  have  graduated  from  this 
class  and  are  now  considered  among  our  most  satisfactory  accounts.* 
We  know  that  next  week  or  next  month  there  will  be  changes  in  a 
certain  percentage  of  the  accounts  which  are  open  on  our  books  today. 

We  have  developed  our  theory  of  personal  acquaintance  with 
customers  to  the  point  where  we  are  satisfied  that  the  results  are 
going  to  be  worth  our  efforts  and  in  the  end  will  pay  high  dividends. 

There  is  literally  no  end  to  the  constructive  suggestions 
that  can  come  from  a  credit  man  before  delinquency.  For 
instance,  a  certain  lumber  company  that  had  made  up  its 
mind  to  improve  payments  by  helping  its  dealers  to  do  better 
business,  sent  out  a  booklet  of  efficiency  suggestions  showing 
among  other  things  how  to  make  prompt  collections.  The 
letter  introducing  the  booklet  called  attention  to  the  im- 
portance of  prompt  collections  by  builders  from  customers, 
and  of  equally  prompt  payments  from  the  builders  to  the 
lumber  company,  if  prices  were  to  be  kept  low  enough  to 
combat  mail-order  houses.  A  similar  argument  was  used  by 
a  jobber  making  a  specialty  of  cash  bargains  that  enabled 
country  merchants  to  meet  the  prices  of  the  catalogue  houses. 

*The  italics  are  the  author's. 


; 


MORE   CONSTRUCTIVE   CREDIT  WORK 


I 


iti  ( 


m 


Ih 


V  I 


il 


308 


NEW   COLLECTION   METHODS 


309 


Dealer's  help  booklets  of  every  kind  have  an  opportunity  to 
preach  efficient  accounting,  prompt  collections,  quick  turn- 
overs, and  prompt  payments  as  a  means  of  keeping  prices 
low  to  the  dealer  and  of  enabling  him  to  give  low  prices  to 
his  customers.  Specific  instances  drawn  from  the  conduct  of 
a  particular  business  form  the  best  material  for  this  purpose. 
The  Sherwin-Williams  Company,  and  H.  Uehlinger,  credit 
manager  for  Moller  and  Schumann,  manufacturers  of  "Hylo" 
varnishes,  are  frequently  quoted  exemplars  of  this  kind  of 
constructive  work. 

A  commission  merchant  whose  terms  are  necessarily 
short,  prints  a  strong  appeal  to  self-interest  on  the  back  of 
every  statement  and  invoice.  He  points  out  that  goods  will 
spoil  unless  turned  rapidly,  and  that  the  maintenance  of  short 
terms  is  for  the  benefit  of  his  customers  as  well  as  for  him- 
self. Merchants  in  other  lines  with  longer  terms  would  prob- 
ably prefer  to  send  such  an  appeal  as  a  printed  insert  with  the 
statement,  when  payment  is  past  due. 

The  Appeal  to  Pride  in  Selling  Credit 

When  customers  are  of  good  standing  and  business 
transactions  are  large,  credit  education  must  be  conducted 
very  delicately.  A  favorite  method  is  to  treat  such  customers 
as  equals,  and  to  pass  on  to  them  items  of  information  they 
may  find  useful  in  establishing  prompt  credits  and  prompt 
collections  with  their  own  customers.  This  appeals  strongly 
to  pride  and  has  no  hint  that  the  advice  is  intended  to  react 
directly  on  the  man  who  listens  to  it. 

Most  credit  education  is  conveyed  in  this  fashion. 

An  appeal  to  pride  of  a  different  kind  is  also  used  by 
instalment  houses  or  others  undertaking  an  extremely 
hazardous  risk.  A  large  credit  mail-order  house  at  the 
beginning  of  a  letter  of  solicitation  tells  the  customer,  "I 
have  been  told  that  you  are  a  thoroughly  reliable  person — 


one  who  takes  pride  in  a  cozy  and  pretty  home,  and  frankly 
I  am  anxious  to  make  you  a  customer  of  mine."  Other 
paragraphs  of  the  letter  read:  "We  never  made  any  distinc- 
tion about  a  person's  occupation  or  earning  power.  There 
is  only  one  thing  that  recommended  a  person  to  us  and  that 
was — honesty."  "Notice  that  we  ask  for  no  references  or 
securities.  During  a  half-century  of  business  dealings  with 
home-loving  people  all  over  America,  we  have  learned  that 
such  folks  are  honest.  And  it  is  not  necessary  to  tie  up  our 
wonderful  credit  plan  with  red  tape,  embarrassment,  or 
annoyance." 

Industrial  Service  from  Banks 

The  interest  of  banking  houses  in  the  efficiency  of  busi- 
ness men  who  have  secured  a  line  of  credit,  is  hardly  less 
than  that  of  the  jobber  or  the  manufacturer.  This  fact  is 
recognized  by  the  National  City  Bank  of  New  York  in  its 
installation  of  a  Department  for  Industrial  Service  on  an 
equality  with  its  Foreign  Trade  Department  and  its  New 
Business  Department,  its  Credit  Department,  and  its  other 
departments.  According  to  M.  C.  Schwedtman,  vice-presi- 
dent, in  a  recently  issued  folder,  this  department  "will  com- 
bine, with  the  systematic  examination  of  the  physical  and 
financial  management  of  industrial  concerns  having  credit 
relations  with  the  bank,  a  service  of  expert  assistants  in 
standardizing  methods  and  accounting.  Visits  will  be  made 
by  members  of  the  department  to  customers'  places  of  busi- 
ness." In  eloquent  and  prophetic  words  which  should  be  read 
in  full  by  every  banker  and  credit  man,  Mr.  Schwedtman 
expresses  the  hope  that  the  bank  will,  by  virtue  of  the  per- 
sonal contact  thus  established,  not  only  be  able  to  appraise 
the  true  worth  of  such  assets  as  personnel  of  officers  and 
labor  conditions  in  the  factory,  "but  also  by  placing  the 
emphasis  on  better  methods  of  doing  business,  to  help  swell 


i^' 


310 


NEW   COLLECTION   METHODS 


MORE   CONSTRUCTIVE   CREDIT   WORK 


311 


f- 


i^ 


the  tide  of  interest  in  scientific  cost-keeping  and  more  efficient 
management,  regarded  by  keen  observers  as  essential  to  our 
success  in  the  worldwide  economic  struggle  certain  to  follow 

the  present  war No  applicant  for  a  line  of  credit 

that  is  worthy  of  serious  attention  should  ever  ....  be 
refused  without  setting  forth  the  real  reasons,  tactfully  and 
in  the  most  friendly  spirit,  and  making  what  constructive 
suggestions  seem  pertinent." 

"Who,"  asks  Mr.  Schwedtman,  "is  or  should  be  more 
deeply  and  vitally  interested  in  the  general  prosperity  of 
industry  than  the  banker?  He  wishes  or  should  wish  nothing 
for  the  individual  business  which  is  not  for  the  highest  good 
of  that  business,  for  what  is  of  lasting  benefit  to  it  is  to 
the  bank's  good  as  well."  Education  is  a  primary  necessity. 
"What  an  infinite  deal  can  be  wrought  through  the  channels 
of  education!  Ignorance  is  our  common  foe;  if  we  knew 
better  we  would  do  better Co-operation  in  the  inter- 
change of  knowledge  and  ideas  is  an  absolute  essential  to 
progress,  and  the  individual,  whatever  his  station  in  life,  who 
shuts  himself  off  from  his  fellows,  who  assumes  that  he 
knows  all  there  is  to  know,  or  at  least  all  that  is  worth 
knowing  about  his  specialty,  is  standing  in  his  own  light. 
He  not  only  robs  himself  but  all  society,  and  his  loss  is  in 
proportion  to  his  responsibility." 

"How  We  Can  Help  You" 

The  First  National  Bank  of  Utica,  New  York,  issues 
under  this  title  a  booklet  which  explains  its  ability  to  give 
service  of  unusual  type  to  its  patrons.  In  a  section  empha- 
sizing the  importance  of  efficient  bookkeeping,  it  freely  places 
at  the  disposal  of  its  customers  the  service  of  its  book- 
keeping experts.  In  the  matter  of  eliminating  waste  in  office 
routine,  the  bank  offers  the  benefit  of  its  own  experience. 

Many  a  bank  today  is  taking  stock  of  its  ability  to  serve 


its  customers  in  ways  that  will  increase  their  efficiency  and 
prosperity  and  that  will  help  the  bank  grow  at  the  same 
time.  These  are  but  other  illustrations  of  the  kind  of  credit 
work  that  is  not  only  preventive  but  constructive ;  that  builds 
good-will  and  establishes  a  confidence  that  is  of  untold  value 
when  difficulties  arise. 

A  Diploma  from  the  School  of  Hard  Knocks 

Somewhere  in  the  Middle  West  there  is  a  retail  merchant 
who  prizes  highly  a  letter  written  him  by  his  largest  creditor, 
at  the  end  of  a  severe  struggle  covering  a  year  and  a  half. 
It  is  selected  to  close  this  chapter,  not  only  because  of  its 
fine  expression  of  appreciation,  but  because  it  shows  that 
the  end  of  a  piece  of  constructive  credit  work  is  only  the 
beginning  of  a  vigilant  program  of  efficiency. 

Dear  Sir: 

You  have  again  proved  yourself  to  be  a  man  of  great  patience 
and  good  courage. 

In  February,  1914,  when  you  disclosed  the  status  of  your  business 
to  us,  we  did  not  think  you  had  much  more  than  a  fighting  chance. 
Some  of  the  other  creditors  with  whom  we  communicated  at  the 
time  were  very  strongly  of  the  opinion  that  you  had  no  chance  at  all. 

Consequently,  it  is  a  matter  of  pride  to  us  to  be  able  to  mail  a 
general  letter  to  creditors,  calling  their  attention  to  the  successful 
result  of  your  effort.  We  congratulate  you  and  wish  to  express  our 
admiration  for  your  pluck  and  judgment. 

It  is  a  rare  thing  for  us  to  make  suggestions  to  other  creditors 
in  affairs  of  this  kind.  In  a  period  of  ten  years,  we  do  not  recall 
that  we  have  done  it  more  than  twice.  Having  known  you  for  a  long 
time  and  having  faith  in  your  power  to  straighten  things  out,  we 
took  it  up  in  this  case. 

When  your  sales  fell  off  immediately  after  the  extension  was 
arranged  and  it  proved  so  difficult  to  reduce  expenses,  we  confess 
that  we  had  some  serious  doubts  about  you,  but  you  met  the  double 
difficulty  without  any  tremors  and  did  nobly  in  overcoming  the  un- 
expected obstacles. 

While  your  merchandise  creditors  are  entitled  to  your  thanks, 
one  source  of  assistance  which  enabled  you  to  carry  your  business 


^'  i 


312 


NEW   COLLECTION   METHODS 


,ii 


on  and  to  re-establish  your  merchandise  credit  was  the  staunch  sup- 
port of  your  bank,  which  not  only  showed  its  confidence  in  you,  but 
evidenced  its  desire  to  sustain  local  enterprise. 

Having  gone  through  this  experience,  you  ought  to  be  able  now 
to  handle  your  business  in  such  a  way  that  the  pitfalls  can  be 
avoided;  you  are  stronger  in  experience  and  in  judgment  as  a  re- 
sult of  the  effort  of  the  last  year  and  a  half. 

We  hope  you  will  not  feel  that  the  battle  is  wholly  won;  you 
still  have  some  current  merchandise  bills  and  the  bank  indebtedness. 
Your  expense  is  high  in  proportion  to  your  volume,  so  you  must  be 
careful. 

For  your  sake,  we  trust  that  an  improvement  in  conditions  will 
enable  you  to  increase  your  volume  of  sales  and  we  advise  you 
earnestly  to  continue  to  hold  down  your  expense  so  that  you  can 
make  some  profits  with  which  to  increase  your  capital  and  thus 
gradually  work  into  the  zone  of  safety. 

In  accordance  with  your  recent  request,  we  are  enclosing  a 
statement  showing  a  balance  due  you  of  $ 

While  it  is  customary  under  extensions  to  charge  interest  for 
overtime,  we  have  waived  the  charge  in  this  instance  as  a  slight 
evidence  of  our  appreciation  of  your  efforts. 

Yours  truly. 


CHAPTER    XXIX 

SYSTEM  FOR  A  COLLECTION  DEPARTMENT 

The  Value  of  System 

A  good  system,  well  maintained  and  lived  up  to,  will  go 
further  than  any  other  one  thing  to  insure  good  collections. 
On  the  other  hand,  no  matter  how  broad-minded  and 
capable  the  members  of  the  credit  and  collection  depart- 
ments, their  efforts  will  go  for  naught  without  a  good 
system. 

The  force  of  habit  is  utterly  lost  as  an  ally  to  the  creditor 
unless  the  customer  receives  his  statements  and  letters 
promptly  and  regularly.  If  mistakes  or  irregularities  occur, 
the  prestige  of  the  house,  that  vital  asset  in  enforcing  pay- 
ment, suffers  in  the  customer's  eyes;  he  feels  that  he  has  a 
right  to  be  lax  since  the  members  of  the  organization  have 
made  errors,  and  where  they  have  taken  an  inch,  he  considers 
himself  privileged  to  take  an  ell.  Resale  arguments  lose 
their  power  when  addressed  to  a  man  who  is  thinking,  "You 
can't  depend  on  those  people.  Half  the  time  they  send  out 
their  bills  late,  and  then  they  jump  on  you  for  being  late 
yourself."  Plenty  of  customers  willingly  exaggerate  small 
errors,  and  what  is  worse,  claim  them  when  they  do  not 
exist.  It  is  hard  to  preach  virtue  when  you  set  a  bad 
example. 

Reasons  for  Differences  in  Systems 

The  nature  of  systems  varies,  even  in  firms  with  similar 
problems  to  meet.  It  varies  still  more  in  firms  of  different 
types.     The  number  of  accounts,  the  size  of  accounts,  the 

313 


^^ili 


uiiip-"' 


III 


314 


NEW   COLLECTION   METHODS 


frequency  with  which  customers  buy,  the  nature  of  the  cus- 
tomers, all  require  differences  in  system.  A  manufacturer 
doing  a  business  of  $30,000,000,  with  average  individual 
charges  of  $150;  a  jobber  with  65,000  Hve  accounts,  many 
of  whom  are  buying  every  day  or  even  several  times  a  day, 
and  with  average  charges  of  $30;  a  manufacturer  with  only 
jobber  accounts,  or  one  selling  to  both  jobbers  and  retailers, 
or  one  selling  direct  only,  will  have  different  requirements  in 
the  way  of  office  organization.  Here  is  a  house  producing 
an  exclusive  specialty,  with  novelty  features,  an  article  that 
turns  itself  ten  times  a  year,  and  that  by  its  nature  must 
be  bought  "short"  lest  it  spoil  on  the  dealer^s  hands.  Terms 
are  30  days  net,  and  are  rigidly  enforced.  Over  50,000 
jobbers  and  retailers  carry  the  goods.  The  system  of  this 
manufacturer  will  be  one  thing;  quite  another  will  be  that 
of  a  publisher  selling  a  high-priced  set  of  books  to  the 
general  public,  on  instalments  that  run  for  two  years.  Is 
the  article  a  piece  of  machinery,  costing  a  thousand  dollars 
and  sold  to  highly  responsible  purchasers  in  a  limited  terri- 
tory? Or  is  it  an  assortment  of  low-priced  watches,  sold 
to  all  manner  of  retailers,  both  small  and  large,  from  Maine 
to  California?  The  office  problems  of  the  two  concerns  will 
certainly  not  be  the  same,  any  more  than  the  salesman's 
problems,  the  credit  man's  problems,  or  the  terms,  or  the 
procedure  for  enforcing  them. 

But  the  various  types  of  business  can  learn  from  each 
other.  The  instalment  house,  its  wits  sharpened  by  its 
unusual  credit  risk,  has  worked  out  ideas  that  can  be  adopted 
by  the  manufacturer  of  expensive  machinery.  The  machinery 
manufacturer,  with  so  few  accounts  to  handle  that  he 
requires  only  part  of  the  time  of  one  man  to  manage  them, 
finds  that  this  man  has  almost  time  enough  left  to  take  care 
of  another  duty  also.  Consequently  he  devises  methods  that 
simplify  the  collection  task  still   further  and  behold,  these 


SYSTEM   FOR  A   COLLECTION   DEPARTMENT      315 

methods  may  be  utilized  equally  well  by  the  big  jobber,  who 
as  a  result  reduces  his  office  force  from  nineteen  to  sixteen. 

The  cost  of  the  collection  department  is  not  wholly  a 
matter  of  salaries  and  time.  Adding  an  assistant  may  be 
cheaper  than  dropping  one,  if  it  produces  fewer  mistakes 
and  delays.  Employing  higher-priced  help  may  be  an 
economy.  Saving  at  the  spigot  and  wasting  at  the  bunghole 
is  the  very  mistake  which  a  capable  executive,  with  a  vision 
of  his  business  as  a  whole,  makes  it  his  care  to  prevent, 
and  he  is  entirely  willing  to  spend  more  money  on  salaries 
if  he  saves  the  amount  twice  over  in  reduced  losses  from 
bad  debts,  or  in  a  lowered  sales  expense  due  to  a  greater 
volume  of  repeat  orders  from  satisfied  customers. 

Wanted— A  System  that  Works 

A  system  that  works,  that  meets  the  needs  of  the  business 
at  the  lowest  cost,  is  what  every  office  wants.  Changes  in 
the  volume  of  a  business  may  require  a  change  in  system. 
A  well-executed  sales  and  advertising  campaign  may  bring 
great  numbers  of  new  accounts  on  the  books,  and  prepara- 
tions should  be  made  to  handle  them.  During  the  investi- 
gations that  preceded  the  writing  of  the  present  book,  the 
writer  visited  an  office  that  was  swamped  with  work,  away 
behind  schedule,  and  reaping  a  plentiful  harvest  of  com- 
plaints. The  cause  was  in  part  an  aggressive  sales  move- 
ment, in  part  a  change  in  the  marketing  policy  in  one  terri- 
tory, where  the  jobbers  had  been  eliminated.  Thousands  of 
accounts  had  to  be  cared  for  in  place  of  a  few  hundreds  for 
that  section  of  the  country,  and  the  credit  department  was 
being  called  on  to  "grow  up"  to  the  situation  overnight. 

Systems  that  Fail 

An  added  inconvenience  may  turn  out  to  be  a  useless 
expense.      One  house  adopted   a  method  that   required   an 


3i6 


NEW    COLLECTION   METHODS 


extra  copying  of  each  account,  on  the  theory  that  it  made 
reference  to  the  account  easier,  and  acted  as  a  check  on  the 
other  copies.  In  practice,  however,  it  turned  out  that  the 
expense  of  copying  exceeded  the  saving  of  time;  moreover, 
the  clerks  did  not  keep  the  new  record  up  to  date,  which 
ruined  its  usefulness.  In  another  instance  a  new  system 
failed  to  produce  estimated  savings,  and  a  recommendation 
was  made  that  it  be  discontinued.  Analysis  showed,  how- 
ever, that  all  the  trouble  was  due  to  faulty  location  of  the 
credit  files.  These  had  been  so  placed  that  those  working 
with  them  interfered  with  the  gangway  used  by  certain 
clerks ;  they  did  not  like  to  squeeze  past  the  credit  men  work- 
ing at  the  files,  and  consequently  "soldiered"  until  the  pas- 
sageway was  clear,  consuming  enough  time  to  pull  the  entire 
system  down  to  the  point  of  inefficiency.  Relocation  of  the 
credit  files  and  a  little  education  of  the  office  force  set  the 
wheels  moving  at  the  desired  speed,  and  saved  the  house 
the  amount  it  had  estimated. 


System  for  the  Branch  Office 

A  method  which  works  for  a  centralized  business  may 
fail  utterly  in  a  decentralized  business.  The  former  may 
require  additional  mechanism  to  supply  the  lack  of  close 
contact  with  customers.  A  branch  manager  may  know  his 
trade  so  well  that  he  gets  along  with  half  the  routine  that 
would  be  required  by  the  home  office  in  handling  the  same 
trade.  On  the  other  hand,  the  branch  manager  may  toil  in 
vain  to  equal,  both  in  person  and  with  the  aid  of  much 
routine,  results  which  a  real  credit  genius  in  the  home  office 
may  accomplish  with  little  effort,  despite  his  handicap  of 
distance.  The  force  of  his  personality  and  his  ability  to 
develop  an  intelligent  and  loyal  staff  may  be  such  that  his 
little  finger  is  thicker  than  his  subordinate's  loin.  One  result 
of  this  situation,  by  the  way,  may  be  that  the  chief  fails  to 


SYSTEM    FOR   A   COLLECTION    DEPARTMENT       317 

realize  that  methods  successful  for  himself  will  not  avail  for 
others,  and  consequently  permits  systems  in  the  branch  offices 
which  will  not  do  the  work  demanded  of  them.  Or  on  the 
other  hand,  he  may  load  down  local  offices  with  an  excess 

of  routine. 

No  system  exists  independent  of  personality.  One  man 
may  be  able  to  operate  it  successfully  where  another  man 
cannot— and  this  may  imply  no  reflection  on  the  second 
man.  But  in  general,  the  unresting  desire  for  improvement 
which  characterizes  the  American  business  man  makes  him 
willing  to  learn  from  the  experience  of  others  and  to  discard 
the  objection,  "My  business  is  different."  The  analytic  mind 
learns  to  look  through  detail  at  the  underlying  principle,  and 
then  asks,  "Can  I  adapt  that  principle  to  my  business?" 
Careful  analysis,  also,  may  disclose  that  the  obstructions  to 
a  plan  can  be  removed  with  unexpected  ease. 

The  Common  Features  of  All  Systems 

Many  different  types  of  system  are  in  use,  and  many 
houses  are  getting  along  very  comfortably  under  an  arrange- 
ment to  which  they  have  become  adjusted,  without  bothering 
to  ask  whether  it  could  be  improved.  Others  feel  the  need 
of  a  change,  but  hesitate  to  install  a  method  which  is  not 

entirely  clear  to  them. 

The  following  sections  contain  an  outline  of  a  few  typical 
systems.  It  is  the  observation  of  the  present  writer  that 
nothing  is  more  difficult  to  understand  than  such  systems. 
He  has  been  told  of  several  instances  in  which  an  officer  of 
one  house  has  visited  another  house,  has  had  the  system  of 
that  house  explained  to  him  in  conversation,  and  has  gone 
away  either  misunderstanding  the  actual  operation  of  the 
routine,  or  failing  to  grasp  the  essential  point  at  issue,  and 
unable  to  determine  whether  it  would  serve  his  purpose. 

Accordingly,  at  the   risk  of  being  over  explicit,   it  has 


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318 


NEW   COLLECTION   METHODS 


seemed  best  to  reduce  all  systems  to  the  elements,  and  to 
attempt  to  hold  these  elements  in  mind  as  the  central  points 
about  which  the  details  of  any  system  are  grouped. 

Ten  Necessary  Operations  and  the  System  They  Require 

It  is  evident  that  the  items  of  system  in  a  credit  and 
collection  department  are  brought  into  being  as  the  result  of 
certain  necessary  operations. 

1.  A  record  must  be  kept  of  charges  and  credits  for 
each  customer.  This  requires  a  ledger,  in  either  book  or 
card  form. 

2.  When  an  order  is  received,  the  credit  man  must  either 
pass  it  for  credit,  hold  it  pending  investigation,  or  refuse  it. 
If  from  an  established  customer,  he  will  be  obliged  to  look 
up  the  present  state  of  the  account,  and  if  this  is  not  satis- 
factory, or  if  special  caution  is  needed,  he  must  look  up 
credit  information  obtained  from  other  sources.  If  the  order 
comes  from  a  new  customer,  he  must  secure  information  as 
a  basis  for  granting  or  refusing  credit,  and  must  file  this 
information  for  future  reference. 

These  operations  will  require  either  access  to  the  ledger, 
or  to  a  transcript  of  all  or  part  of  the  ledger  record,  which 
is  kept  in  a  separate  file;  also  a  file  of  credit  information, 
including  letters,  salesmen's  reports,  etc. 

3.  Invoices  must  be  made  out  in  duplicate  on  shipment  of 
orders,  and  the  duplicate  filed.     This  requires  an  invoice  file. 

4.  All  correspondence  from  all  departments,  either 
originals  or  copies,  relating  to  the  customer,  must  be  filed 
together  under  a  separate  heading,  so  that  a  central  place 
exists  to  which  all  questions  regarding  house  relations  with 
that  customer  can  be  referred.  This  requires  a  central  corre- 
spondence file. 

5.  When  a  bill  becomes  due,  that  fact  must  be  known  at 
a  definite  time  and  the  customer  notified.  This  requires  regu- 


SYSTEM    FOR  A   COLLECTION    DEPARTMENT      319 

lar  access  to  the  ledger  on  the  part  of  someone  charged  with 
collection  duties,  or  access  to  another  file  containing  ledger 

information. 

6.  If  the  bill  is  not  paid  within  a  given  time,  further 
steps  in  collection  must  be  taken  at  regular  intervals  in  an 
advancing  series.  This  requires  either  examination  of  the 
ledger  at  regular  intervals,  or  a  maturity  file  for  follow-up 

purposes,  or  both. 

7.  The  sales  department  must  be  informed  of  the  rela- 
tion of  the  customer's  indebtedness  to  his  credit  limit,  and 
of  changes  in  his  credit  rating,  so  as  to  be  guided  in  selling 
to  him.  This  requires  systematic  memoranda  to  the  sales 
department  on  doubtful  accounts,  and  memoranda  from  the 
sales  department  to  the  salesmen. 

8.  Payments  made  must  be  known  to  the  credit  man  so 
that  he  will  stop  the  collection  routine  and  not  continue  to 
press  for  payment  of  an  account  already  paid.  This  requires 
absolute  certainty  in  recording  payments  instantly  in  the 
ledger  and  in  any  other  file  bearing  ledger  information,  and 
reference   to   this   record   before   taking   the   next    step    in 

collection. 

9.  Claims  affecting  the  payment  of  certain  items  must 
likewise  be  known  to  the  credit  man  so  that  he  will  not  press 
for  payment  of  an  account  which  is  in  process  of  adjust- 
ment, but  will  press  for  payment  if  the  adjustment  is  re- 
fused. This  requires  systematic  memoranda  to  and  from  the 
claim  department  regarding  claims  and  adjustments. 

10.  After  the  preliminary  steps  in  the  collection  routine 
have  been  taken,  if  payment  is  not  made,  it  may  be  necessary 
to  consult  the  record  of  account  and  the  file  of  credit  in- 
formation to  guide  the  judgment  of  the  department  as  to 
what  steps  should  next  be  taken.  This  requires  access  to  the 
ledger  or  other  record  of  account,  by  the  member  of  the 
organization  to  whom  these  later  steps  are  entrusted. 


320 


NEW   COLLECTION   METHODS 


Six  Items  of  Equipment 

It  will  be  seen  that  the  necessities  of  any  system  are  (i) 
a  ledger,  (2)  a  file  of  credit  information,  (3)  an  invoice 
file,  and  (4)  a  correspondence  file.  Optional  items  are  (5)  a 
file  with  a  transcript — complete  or  partial — of  ledger  in- 
formation, and  (6)  a  special  maturity  file.  For  conducting 
the  follow-up  any  one  of  these  six  may  be  used,  though  some 
are  in  general  preferred  to  others. 

In  nearly  every  organization  it  is  advisable  to  reduce  the 
earlier  steps  in  collection  to  a  routine  which  can  be  carried 
on  by  the  bookkeeper  or  a  collection  clerk,  while  only  the 
later  steps  or  difficult  cases  come  to  the  attention  of  the 
credit  department,  which  thus  has  its  hands  free  for  matters 
requiring  special  judgment.  This  division  of  labor  must  be 
reduced  to  a  schedule  and  rigidly  maintained,  so  that  the 
duties  of  each  member  of  the  organization  are  perfectly  clear, 
and  accounts  pass  from  the  hands  of  the  bookkeeper  at  a 
specified  stage  in  the  routine,  into  the  hands  of  the  collection 
department  or  the  credit  department,  as  the  case  may  be. 

The  record  of  account,  the  follow-up  system,  and  the 
division  of  labor,  are  the  three  fundamental  necessities  of 
any  collection  system. 

Since  the  problems  of  collection  systems  arise  in  connec- 
tion with  each  of  the  ten  operations  outlined  in  the  foregoing 
section,  as  well  as  with  the  six  items  of  equipment  just  men- 
tioned, they  will  be  taken  up  in  that  fashion. 

Solving  the  Big  Problems 

The  thousand  variations  in  system  which  men  work  out 
in  practice  usually  arise  in  the  effort  to  solve  a  few  chief 
problems.  If  you  should  walk  into  an  up-to-date  office  and 
inquire  why  they  do  things  in  a  certain  way,  the  chances 
favor  your  finding  the  cause  in  one  of  four  matters. 

First,  does  the  use  of  the  ledger  by  credit  and  collection 


SYSTEM   FOR  A  COLLECTION   DEPARTMENT      321 

men  interfere  too  much  with  the  bookkeepers  or  are  the 
ledgers  too  far  away  for  easy  consultation?  If  so,  another 
file  must  be  established  for  their  reference. 

Second,  can  members  of  the  department  get  along  with- 
out referring  to  several  files  each  time  guidance  is  sought 
from  the  records?  In  this  effort  the  office  may  have  devised 
some  means  of  assembling  various  records  in  a  single  book 
or  file,  or  at  least  in  one  place. 

Third,  in  order  to  care  for  volume  of  business,  cannot 
some  short  cuts  be  adopted  to  reduce  the  number  of  times  the 
files  are  consulted,  without  destroying  the  safeguards  sur- 
rounding the  procedure  of  collection? 

Fourth,  since  most  customers  pay  without  requiring 
special  attention,  how  can  an  inexpensive  routine  be  adopted 
to  take  care  of  the  great  majority  of  accounts,  and  how  much 
of  the  whole  procedure  can  be  converted  into  routine;  how 
can  we  reach  that  ideal  of  a  routine  that  cares  for  nearly  every 
step,  but  which  is  constantly  supervised  and  administered  by 
intelligence?  This  is  largely  a  question  of  the  division  of 
labor  between  subordinates  and  superiors,  but  partly  also  a 
question  of  the  wise  use  of  forms. 

Incidentally,  the  danger  of  the  last  situation  is  that  all  the 
energy  of  high-salaried  and  capable  men  may  be  spent  with 
the  least  profitable  and  deserving  class  of  trade,  while  no  con- 
structive work  is  spent  on  the  best  class.  This  limitation  on 
the  usefulness  of  the  credit  department  can  be  prevented,  if 
the  opportunities  illustrated  in  Chapters  VII,  XIII,  XIV, 
XXVII,  and  XXVIII,  on  selling  credit,  co-operation  with 
the  sales  department,  and  constructive  credits,  are  laid  hold  of. 

The  Record  of  Account — ^The  Ledger 

The  ledger  is  the  final  authority  on  the  state  of  the  cus- 
tomer's account.  Every  care  must  be  taken  to  make  it  com- 
plete, accurate,  and  up-to-date.    Some  of  the  best  credit  men 


i 


322 


NEW   COLLECTION   METHODS 


are  accustomed  to  use  no  other  record  in  handling  all  credit 
and  collection  correspondence.  They  say  that  with  the  ledger 
before  them  they  know  all  they  need  to  know,  and  can  inter- 
pret at  a  glance  the  whole  history  of  the  account,  and  can 
determine  how  to  treat  it.  Some  even  attach  tissues  of  the 
correspondence  to  the  ledger  sheet  (see  page  327).  They 
point  out  that  the  ledger  is  the  original  record,  and  that  the 
more  one  depends  on  originals  and  the  less  on  copies,  the  less 
chance  of  mistakes ;  for  a  copy  of  an  original  is  twice  as  likely 
to  be  wrong,  and  a  copy  of  a  copy  is  four  times  as  likely  to  be 
wrong.  The  ledger,  they  say,  is  the  easiest  record  to  keep  up 
to  date,  for  in  case  a  department  is  crowded  with  work,  the 
extra  copying  is  apt  to  be  postponed.  If  several  persons  need 
to  refer  occasionally  to  the  account,  perhaps  coming  from 
other  departments,  they  can  always  find  the  ledger  with  the 
least  trouble,  and  should  be  able  to  read  the  whole  story  there. 

Whether  or  not  it  is  used  as  the  sole  record  of  account, 
the  ledger  is  the  chief  record.  The  top  of  the  sheet  should 
contain  credit  data,  consisting  of  the  credit  limit  assigned,  and 
the  agency  ratings.  It  should  be  kept  so  as  always  to  show 
at  a  glance  the  present  balance,  without  figuring  credits  from 
debits  to  find  the  customer's  indebtedness.  It  may  contain 
space  for  a  star  or  a  check  mark  to  indicate  special  caution; 
and  space  for  notes  on  the  customer's  habits  of  payment, 
whether  good  pay,  slow  pay,  or  poor  pay,  his  attitude  toward 
drafts,  etc. 

If  the  follow-up  is  to  be  conducted  from  the  ledger,  across 
the  top  of  the  sheet  may  be  printed  the  days  of  the  month, 
to  be  marked  by  a  signal  tag  to  show  the  day  on  which  the 
account  is  to  receive  attention.  There  will  also  be  a  column 
for  notations  to  indicate  what  steps  in  the  collection  routine 
have  been  taken,  and  the  date.  Thus  S  3/27 — R  4/5 — DL 
4/16 —  D  4/26  opposite  an  item  would  show  that  a  statement 
had  been  sent  March  2"],  a  reminder  April  5,  a  draft  letter — 


SYSTEM   FOR  A  COLLECTION   DEPARTMENT         323 

warning  of  a  draft — ^April  16,  followed  by  a  draft  April  26. 
A  series  of  symbols  to  fit  the  procedure  of  the  office  is  easily 
established. 

The  ledger  card  employed  by  a  house  selling  goods  on  the 
instalment  plan  is  reproduced  on  page  324  as  an  example  of 
the  special  forms  required  by  those  houses  which  have  an 
unusual  credit  problem. 

The  Record  of  Account — Collection  Cards 

For  greater  convenience  the  collection  record  may  be 
transcribed  on  a  card  with  entries  for  credit  rating,  personal 
experience,  etc.,  and  spaces  to  show  the  handling  of  each 
item  on  the  account.  Symbols  can  be  placed  in  these  to  indi- 
cate the  statement,  letters,  drafts,  etc.,  issued  in  connection 
with  any  item.  The  follow-up  can  easily  be  conducted  from 
tliis  card  by  having  the  days  of  the  month  printed  across  the 
top  and  a  signal  tab  used  to  indicate  the  dates  on  which  atten- 
tion is  next  to  be  given  the  account.  Forms  for  this  purpose 
will  be  submitted  by  any  prominent  supply  house,  or  special 
forms  can  be  devised  on  consultation  with  the  representative 
of  such  a  house.  The  collection  man  with  an  unusual  credit 
risk  and  consequently  an  unusual  collection  problem,  will  re- 
quire more  than  the  ordinary  form. 

The  Credit  File 

Credit  information  is  commonly  kept  In  a  separate  file,  the 
folders  being  preferably  of  letter  size  so  as  to  include  corre- 
spondence from  salesmen,  from  references  and  from  the  cus- 
tomer direct,  as  well  as  salesmen's  reports,  etc. 

One  good  form  for  such  a  folder  contains  along  the  tab 
the  name,  address,  town,  state,  and  business  of  the  customer, 
and  the  name  of  ths  salesman.  On  the  face  of  the  folder  is  a 
ledger  transcript  showing  agency  rating,  credit  limit,  amount 
sold  each  month,  while  on  the  edge  of  the  folder  above  this 


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SYSTEM    FOR  A   COLLECTION   DEPARTMENT      325 

are  printed  the  days  of  the  month  for  follow-up  purposes, 
though  in  practice  the  follow-up  is  seldom  conducted  from  it. 
The  face  of  the  folder  can  be  used  for  recording  the  various 
items  of  credit  information  in  spaces  labeled  for  the  purpose. 

To  avoid  unnecessary  consultation  of  this  file  the  credit 
man  makes  frequent  use  of  the  brief  credit  references  on  the 
ledger  sheet  or  the  collection  card ;  or  provides  a  special  credit 
card  like  the  sample  shown  on  page  326. 

This  is  especially  useful  where  the  volume  of  accounts  is 
large.  Thus  many  orders  can  be  passed  on  the  salesman's 
recommendation  or  from  the  credit  man's  general  knowledge 
of  the  account;  others  can  be  passed  after  reference  to  the 
credit  card;  doubtful  accounts  will  require  reference  to  the 
complete  file  of  credit  information  and  to  the  ledger  as  well ; 
while  as  a  further  step  special  inquiries  may  be  addressed  to 
the  agencies,  other  members  of  the  trade,  the  credit  clearing 
house,  etc.  It  is  common  practice,  especially  with  large 
accounts,  for  the  credit  man  to  spend  some  time  each  month 
in  familiarizing  himself  with  the  state  of  his  accounts. 

The  Invoice  File 

Since  the  invoice  file  is  a  necessary  part  of  the  office  equip- 
ment it  is  sometimes  used  for  follow-up  purposes.  Being 
printed  on  thin  stock,  however,  the  invoices  are  difficult  to 
handle  and  when  orders  are  numerous,  confusion  sometimes 
results  from  employing  this  method.  Duplicate  invoices, 
however,  struck  off  at  the  same  time  as  the  original,  and  placed 
in  a  special  maturity  file  or  tickler  provide  an  excellent  means 
of  follow-up. 

The  Correspondence  File 

A  small  business  with  few  accounts  can  conceivably  use 
the  general  correspondence  file  for  follow-up  purposes;  but 
even  here  it  is  not  a  desirable  method.     The  cx)llection  man 


326 


NEW   COLLECTION   METHODS 


SYSTEM   FOR  A  COLLECTION   DEPARTMENT      327 


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may  mark  on  a  slip  the  number  of  the  customer's  folder  and 
the  date  on  which  attention  is  next  desired,  and  file  this  in  his 
personal  tickler;  then  when  the  due  date  has  been  reached, 
he  hands  the  slip  to  a  filing  clerk  who  brings  out  the  customer's 
folder.     The  collection  man  then  ascertains  what  step  has 
been  taken  and  decides  what  letter  should  next  be  written. 
This  is,  however,  a  clumsy  method,  lays  a  great  burden  on  the 
filing  clerk,  and  necessitates  looking  through  a  mass  of  corre- 
spondence most  of  which  is  not  pertinent  to  the  credit  man's 
desires.    Extra  carbon  copies  of  correspondence  may  be  kept 
in  a  personal  maturity  file,  when  a  better  method  has  not 
been  devised.     Carbons  can  be  made  in  triplicate ;  one  goes  to 
the  salesman,  one  to  the  general  correspondence  file,  and  one 
to  the  credit  man's  maturity  file,  described  in  the  next  section. 
The  credit  department's  correspondence  file  will  contain 
a  carbon  copy  of  every  letter  relating  to  that  department.    To 
employ  this  file  for  the  follow-up  it  is  only  necessary  to  mark 
in  blue  pencil  on  the  top  of  the  carbon  copy  the  date  when, 
according  to   schedule,   attention   is  next  to  be  given   the 
account,  and  to  place  the  sheet  in  a  folder  marked  with  a 
division  of  the  alphabet.    As  will  be  seen  this  presupposes  that 
the  volume  of  collection  correspondence  is  small.    Each  morn- 
ing a  clerk  goes  through  the  file  taking  out  the  sheets  marked 
for  attention  on  that  day.     These  are  brought  to  the  credit 
man  who  writes  the  next  letter  required  and  attaches  the 
carbon  to  the  previous  sheet,  marking  it  again  ten  days  ahead. 
Thus,  at  the  time  of  writing  the  letter  the  credit  man  has  under 
his  eye  all  the  correspondence  relating  to  the  case. 

A  Ledger  Correspondence  Folder 

A  unique  device  for  showing  at  a  glance  the  correspon- 
dence and  the  ledger  record  useful  in  handling  a  large  volume 
of  accounts,  is  a  ledger  correspondence  folder  used  by  H. 
Uehlinger,  credit  manager  for  Moller  and  Schumann,  varnish 


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Ijs.i 


328  NEW   COLLECTION   METHODS 

manufacturers  of  Brooklyn.  This  is  a  blue  folder  of  the 
size  of  the  ledger  sheet  and  similarly  cut.  Across  the  top 
are  printed  the  days  in  the  month.  An  opening  is  cut  in 
the  face  of  the  folder.  All  preliminary  credit  correspondence 
of  customers  is  handled  by  means  of  numbered  forms  indi- 
vidually typed.  The  carbon  copy  is  marked  in  blue  pencil  at 
the  top  with  the  key  number,  and  the  copy  is  put  in  the  folder 
in  such  a  manner  that  the  key  number  is  visible  through  the 
opening.  The  follow-up  is  conducted  by  means  of  tabs  at  the 
top  of  the  ledger  sheet.  Thus  when  the  case  comes  to  the 
credit  man,  he  sees  at  a  glance  the  customer's  ledger  record 
and  the  key  number  of  the  last  letter  written.  Where  special 
letters  have  been  dictated,  the  carbon  copies  are  also  in  the 
folder.    The  thin  tissues  do  not  bulk  largely  in  the  ledger. 

The  Personal  Maturity  File 

Some  form  of  the  personal  maturity  file  or  special  tickler 
file  is  the  most  generally  satisfactory  for  follow-up  purposes 
in  connection  with  collection  correspondence.  This  may  be  a 
file  drawer  in  the  collection  man's  desk  containing  either  one, 
two,  or  three  sets  of  folders,  each  numbered  from  i  to  31.  At 
the  time  of  shipment  a  duplicate  invoice  is  marked  with  the 
date  on  which  the  invoice  next  comes  up  for  attention,  say 
ten  days  ahead,  and  placed  in  the  folder  bearing  the  number 
of  that  day.  On  each  day  of  the  month  the  collection  man 
takes  out  the  folder  numbered  for  that  day,  inquires  in  each 
case  whether  payment  has  been  received,  writes  the  letter  re- 
quired, makes  notation  of  that  fact  on  the  invoice  together 
with  the  day  on  which  attention  is  next  required,  and  places 
it  ahead  in  the  appropriate  folder.  A  good  plan  is  to  attach 
to  the  invoice  a  carbon  copy  of  this  letter  and  of  all  subsequent 
correspondence  until  the  account  is  paid. 

The  tickler  memorandum  may  be  a  statement  or  other 
form  of  slip,  instead  of  a  duplicate  invoice. 


SYSTEM   FOR  A  COLLECTION   DEPARTMENT      329 

If  the  follow-up  is  conducted  by  means  of  a  combination 
of  the  ledger  examination  method  and  the  personal  maturity- 
file  method,  the  ledger  clerk  will  go  through  a  portion  of  the 
ledgers  as  part  of  his  daily  prescribed  routine.  When  an 
account  is  due,  he  will  issue  a  statement  and  note  this  fact 
opposite  the  entry  in  the  ledger  together  with  the  date.  He 
will  continue  to  issue  statements  and  form  letters  until,  accord- 
ing to  the  prescribed  routine  of  the  department,  the  case 
should  pass  to  the  hands  of  the  credit  man,  at  which  time  he 
may  send  him  a  memorandum  or  a  statement  or  carbon  copies 
of  correspondence ;  this  will  be  placed  in  the  tickler  file  and 
treated  as  above. 

The  "Master  Sheet"  Method 

A  large  New  York  jobber  at  one  time  made  out  a  "master 
sheet"  covering  the  orders  of  each  day.  Each  line  on  the 
sheet  contained  a  space  for  the  invoice  number,  name  and 
address  of  the  customer,  and  collection  notations.  This  sheet 
was  then  placed  in  a  maturity  file  and  treated  like  a  duplicate 
invoice,  entries  being  crossed  off  as  fast  as  payment  was  made. 
Thus  all  invoices  requiring  attention  on  the  one  day  came  up 
to  the  credit  man  together.  Because  of  its  enormous  volume 
of  orders,  this  firm  has  been  obliged  to  abandon  the  system, 
but  it  still  recommends  it  for  houses  under  normal  conditions. 

Relation  to  the  Claim  Department 

Great  care  must  be  taken  to  insure  that  items  being  made 
the  subject  of  claim  by  the  customer  are  not  pressed  for  col- 
lection until  disallowed  by  the  claim  department.  By  a  regu- 
lar series  of  memoranda,  this  department  must  keep  the  credit 
department  informed  of  progress  on  these  items.  Suppose 
the  credit  department  is  following  up  an  account  on  a  ten  days' 
schedule.  If  an  item  is  in  the  hands  of  the  claim  department, 
the  collection  man  may  note  this  on  the  sheet  with  blue  pencil 


i 


■i 


330 


NEW  COLLECTION  METHODS 


SYSTEM   FOR  A   COLLECTION   DEPARTMENT 


or  attach  a  special  memorandum  or  paste  on  a  colored  sticker. 
In  ten  days,  when  the  account  is  next  reached,  he  may  advance 
it  another  ten  days  in  the  tickler,  without  inquiring  of  the 
claim  department,  but  when  the  second  interval  has  elapsed,  he 
sends  a  memo  to  jog  the  claim  department's  memory.  When 
claims  are  long  drawn  out  and  for  large  amounts,  it  is  some- 
times the  practice  to  charge  them  off  the  books  and  against 
the  claim  department  ledger.  The  claim  department  there- 
after assumes  responsibility  for  adjustment  or  collection  of 
the  amount ;  but  if  after  a  reasonable  time,  its  efforts  are  un- 
successful, the  charge  is  re-entered  on  the  customer's  account, 
all  papers  are  transferred  to  the  collection  department,  and  the 
matter  is  taken  care  of  by  the  collection  manager.  Very  small 
claims  are  granted  by  the  bookkeeper ;  claims  of  medium  size 
are  referred  to  the  claim  department,  but  not  charged  to  their 
ledger. 

The  Interval  Between  Steps 

The  amount  of  time  a  collection  man  allows  to  elapse  be- 
tween sending  out  his  various  statements,  letters,  etc.,  will 
depend  on  two  factors:  first,  whether  the  customer  is  expected 
to  reply  immediately  on  receipt  of  the  letter,  and  second,  what 
is  his  distance  from  the  creditor.  Small  amounts  can  easily 
be  paid  on  the  same  day  on  which  the  communication  is  re- 
ceived;  large  amounts  may  require  a  little  more  time.  The 
keen  and  efficient  collection  man  for  a  well-known  publisher, 
for  example,  has  made  up  his  mind  that  fifteen  days  is  the 
proper  interval;  ten  days  he  has  found  did  not  give  time  for 
a  reply,  while  eighteen  or  twenty  was  so  long  a  time  that  the 
customer  overlooked  the  account  because  he  was  not  reminded 
often  enough.  On  the  other  hand,  an  interval  of  a  week  or 
ten  days  has  great  advantage  in  dividing  time  into  natural 
periods,  thus  making  the  debtor  realize  the  regularity  with 
which  he  is  being  followed  up,  and  appealing  to  his  sense  of 


331 


habit  as  an  aid  in  payment.  It  is  easier  to  figure  from  the  2nd 
to  the  1 2th  of  the  month  or  from  one  Tuesday  to  the  next 
than  to  make  a  mental  estimate  of  any  other  interval  less  than 
a  month.  Let  it  not  be  thought  that  this  point  is  unimportant ; 
if  the  debtor  can  form  a  definite  visual  image  of  the  day  on 
which  payment  is  required,  this  will  act  as  a  powerful 
stimulus.  It  is  better  to  say  "Failing  to  hear  from  you  by 
May  15  we  will  draw,"  than  to  say,  "Failing  to  hear  from 
you  in  ten  days  we  will  draw." 

A  reasonable  mailing  schedule  should  be  established  to 
cover  all  points  with  which  a  house  does  business.  The  fol- 
lowing schedule  is  in  use  by  a  New  York  company  having 
customers  in  every  quarter  of  the  globe. 

Mailing  Schedule 

As  the  name  implies,  this  schedule  is  for  the  purpose  of  gaging 
the  time  necessary  for  a  customer's  reply  to  reach  us.  If  a  man 
Hves  in  New  York  City  it  will  naturally  take  less  time  than  if  he 
lives  somewhere  on  the  Pacific  Coast.  For  instance,  we  should  ex- 
pect a  reply  to  any  of  our  forms  when  sent  to  a  subscriber  in  the 
city  within  five  or  six  days  at  the  utmost;  while  from  a  subscriber 
in  San  Francisco  we  should  not  expect  a  reply  in  less  than  ten  days 
at  the  minimum. 

It  is  very  important  that  the  schedule  outlined  below  be  strictly 
followed  and  the  bills  and  forms  mailed  promptly  on  the  dates  due. 
A  delay  of  one  or  two  days  with  each  form  equals  an  entire  week 
at  the  completion  of  the  series  of  letters  and  might  mean  the  de- 
laying of  the  payment  or  even  in  some  extreme  cases  the  loss  of 
an  account. 

The  following  states  are  allowed  six  days  interval  between  forms : 

Connecticut  Ohio 

Delaware  Pennsylvania 

Illinois  Rhode  Island 

Maine  Vermont 

Maryland  Virginia 

Massachusetts  Washington,  D.  C. 

New  Hampshire  West  Virginia 

New  Jersey  Wisconsin 
New  York 


332 


NEW  COLLECTION  METHODS 


;,  I  .* 


I 


Seven  days  for  Eastern  Canada,  including  Manitoba,  Quebec, 
and  Ontario. 

Eight  days  for: 

Alabama  Minnesota 

Arkansas  Mississippi 

Florida  Missouri 

Georgia  Nebraska 

Indiana  North  Carolina 

Iowa  North  Dakota 

Kansas  Oklahoma 

Kentucky  South  Carolina 

Louisiana  South  Dakota 

Michigan  Tennessee 


Nine  days  for  communications  to: 

Colorado 
Idaho 
Montana 
New  Mexico 

Ten  days  for  Arizona. 
Eleven  days  for: 

California 
Oregon 


Texas 

Utah 

Wyoming 


Nevada 
Washington 


Sixteen  days  for  Mexico. 

Twenty  days  for  subscribers  in  Panama  and  the  Canal  Zone. 

Twenty -two  days  for  Alaska,  Cuba,  and  Egypt. 

Thirty  days  for  Hawaii  and  the  Philippine  Islands. 

Six  weeks  for  communications  to  China  and  Japan. 

One  essential  point  always  to  keep  in  mind  in  connection  with 
this  schedule  is  that  the  Second  Request  is  sent  out  two  days  after 
the  payment  is  due  in  this  office  and  that  the  subscriber  is  allowed 
two  days  longer  than  the  mailing  schedule  calls  for  before  drawing  a 
draft  on  him. 

Here  is  a  model  to  be  followed  for  payments  due  on  the  first 
of  the  month  and  which  have  an  eight-day  interval  for  follow-ups: 

Form  Date  Sent 

Statement  22nd 

2nd  request  o^d 

1st  letter  nth 

2nd  letter  jQth 

3rd  letter  27th 

Draft  6th 


SYSTEM   FOR  A   COLLECTION   DEPARTMENT      333 

All  members  of  the  Collection  Department  should  read  this 
schedule  carefidly  so  as  to  become  well  acquainted  with  the  mailing 
intervals  for  the  various  places  where  we  have  customers. 

Specifications  for  Department  Routine 

Every  item  in  the  department  routine  including  the  duties 
of  each  member  of  the  department  should  be  outlined  in  detail 
and  placed  in  a  folder  of  which  each  member  has  a  copy.  If 
forms  are  employed,  a  loose-leaf  book  of  these  with  an  index, 
showing  key  number  and  nature  of  each  letter,  should  be  in 
the  possession  of  each  individual  issuing  letters.  The  same 
is  true  if  a  form-paragraph  book  is  used.  The  outlined 
routine  should  be  as  simple  as  possible  and  the  duties  of  each 
department  member  recorded  on  separate  sheets  so  as  to  be 
easily  grasped. 

Schedule  for  Ledger  Examination 

The  routine  adopted  by  a  certain  jobber  carrying  50,000 
live  accounts  involves  the  division  of  ledgers  according  to 
territory  and  the  subdivision  of  each  ledger  into  ten  sections. 
Each  day  the  bookkeeper  goes  through  one  of  these  sections, 
thus  covering  his  ledgers  in  ten  days. 

Ten  days  before  a  bill  falls  due,  statement  is  made  out 
and  sent  to  the  customer  with  a  sticker  attached,  reading, 
"This  bill  is  only  a  memorandum.  It  is  not  yet  due"  In  ten 
days,  if  the  account  is  not  yet  paid,  a  second  statement 
is  issued  with  a  paster  attached.  At  the  end  of  the  third  ten 
days,  a  statement  is  made  out  in  red  ink  and  mailed  to  the 
credit  department  where  it  remains  in  a  tickler  file.  Notations 
of  each  step  taken  thereafter  are  made  on  it  and  copies  of  all 
letters  attached  to  it.  A  multigraphed  letter  is  sent  out  as  the 
first  collection  letter  signed  by  the  collection  manager  in  ink, 
and  is  followed  in  ten  days  by  three  individually  typed  forms, 
the  last  of  which  is  an  attorney  letter.  Thus  in  the  thirty  days, 
the  account  has  passed  to  the  credit  department  and  in  sixty 


334 


NEW   COLLECTION   METHODS 


i 


days  has  gone  to  an  attorney  and  has  been  charged  off. 

Petty  items  charged  to  the  claim  department  are  noted  on 
the  ledger  opposite  the  account,  "C.  D./'  and  the  date.  A 
house  letter  is  then  written  the  claim  department  asking  them 
to  make  adjustment.  On  going  through  the  ledger,  the  book- 
keeper makes  a  special  memorandum  of  such  items  and  brings 
them  to  the  credit  manager.  He  instructs  him  to  make  out  a 
statement  covering  items  not  in  dispute,  and  also  writes  the 
customer,  saying  the  claim  department  has  not  adjusted 
certain  items,  but  asking  payment  of  the  balance.  This  pre- 
vents the  customer  from  withholding  payment  entirely. 

Every  statement  or  letter  sent  the  customer  is  noted 
opposite  the  item  in  the  ledger,  form  letters  being  shown  by 
their  key  number,  specially  dictated  letters  by  the  symbol, 
"L."  If  an  extension  is  asked,  for  instance,  till  August  25, 
the  symbol  will  read  "Ex/8/25"  and  a  copy  of  the  letter  grant- 
ing the  extension  is  set  forward  to  August  26  in  the  personal 
maturity  file,  a  day  being  allowed  for  receipt  of  the  letter. 
But  the  account  will  come  up  for  attention  through  ledger  ex- 
amination or  through  the  red  ink  statement  in  the  maturity 
file,  perhaps  on  August  1 1 ;  then  reference  will  be  made  back 
to  the  ledger  to  see  if  payment  has  come  in,  and  this  will  dis- 
close the  fact  that  an  extension  has  been  granted  until  the 
25th.  The  red  ink  statement  is  thereupon  destroyed,  and  no 
attention  is  paid  the  account  until  the  copy  of  the  letter  grant- 
ing the  extension  comes  up  for  attention  on  August  26. 

A  certain  manufacturer  handling  a  large  number  of  small 
sales,  at  the  time  the  order  is  received,  makes  out  on  the  bill- 
ing machine  seven  copies  of  the  invoice  simultaneously.  They 
consist  of  (i)  a  ledger  card,  (2)  a  geographical  file  slip,  (3) 
a  label  slip  which  is  perforated  lengthwise  through  the  center, 
the  upper  half  only  being  used  as  it  contains  the  name  and 
address  of  the  customer,  three  invoices  on  (4)  white,  (5) 
blue,  and  (6)  pink  paper,  and  (7)  a  master  slip  for  the  collec- 


SYSTEM   FOR  A  COLLECTION    DEPARTMENT      335 

tion  department.  Each  copy  carries  the  same  invoice  number. 
The  ledger  card  and  invoices  are  filed  numerically.  The 
geographical  file  slip  is  filed  geographically  for  cross  reference 
purposes.  The  master  slip  is  filed  in  a  maturity  file  fifteen 
days  ahead  of  the  date  on  which  the  goods  are  shipped.  The 
original  (the  white  invoice)  is  sent  the  day  the  order  is  re- 
ceived, irrespective  of  the  shipping  date.  At  the  expiration 
of  the  fifteen  days  the  master  slip  is  compared  with  the  ledger 
card,  and  if  the  account  is  unpaid  a  reminder  sticker  is 
attached  to  the  blue  invoice  and  this  is  sent  to  the  customer, 
the  master  slip  being  filed  ahead  fifteen  days.  In  another 
fifteen  days,  if  the  account  has  not  been  paid,  the  pink  invoice 
with  the  second  reminder  sticker  is  issued,  and  fifteen  days 
later,  if  still  unpaid,  a  form  letter  individually  typed  is  issued 
with  a  statement.  If  not  paid  other  forms  follow  at  fifteen- 
day  intervals,  each  noted  on  the  master  slip.  At  the  expira- 
tion of  ninety  days  the  account  is  charged  to  profit  and  loss 
and  referred  to  a  collection  agency.  If  subsequently  paid  it 
is  recovered  from  the  profit  and  loss  account. 

Avoiding  Unnecessary  Communications 

Every  effort  should  be  made  to  avoid  needless  interdepart- 
ment  communication,  but  rather  to  analyze  precisely  what 
system  is  necessary,  to  establish  this  in  written  form,  and  to 
maintain  it  rigidly.  When  payment  is  rnade  by  check,  whether 
in  the  wholesale  or  the  retail  business,  it  is  usually  unnecessary 
to  send  a  receipt.  A  voucher  check  may  be  employed  by  the 
person  making  payment;  or  the  seller  may  issue  as  part  of 
the  invoice  a  stub  to  be  detached  and  retained  by  the  cus- 
tomer as  evidence  of  payment.  It  is  frequently  good  practice 
to  print  at  the  foot  of  statement  or  invoice  a  sentence  like 
the  following,  "In  accordance  with  a  growing  commercial 
practice,  where  payment  is  made  by  check,  a  receipt  will  not 
be  sent." 


COLLECTING  MAIL-ORDER  ACCOUNTS 


337 


CHAPTER    XXX 

COLLECTING  MAIL-ORDER  ACCOUNTS 

Special  Collection  Programs 

It  is  said  that  our  Government  has  been  disappointed  in 
its  attempt  to  reduce  the  high  cost  of  living  through  the 
dehvery  of  farm  produce  by  parcel  post  direct  from  the 
grower's  field  to  the  consumer's  table  because  of  the  collection 
difficulties  involved.  It  is  certainly  true  that  many  growers 
have  given  up  their  plan  of  direct  shipment  on  this  account. 

Here  is  a  most  spectacular  instance  of  one  of  the  principles 
laid  down  at  the  beginning  of  this  book;  namely,  that  for 
every  novel  marketing  plan  a  credit  and  collection  program 
must  be  prepared  with  as  much  skill  and  knowledge  of  prin- 
ciples as  has  been  used  in  formulating  the  sales  plan. 

It  is  true  that  "most  people  are  honest."  But  it  is  also 
true  that  many  people  are  careless  and  that  the  average  man 
or  woman  has  so  many  things  in  mind  that  small  obligations 
out  of  the  usual  routine  are  easily  disregarded.  Most  people 
are  honest;  but  if  you  wish  to  sell  them  goods,  be  careful  to 
investigate  their  credit  responsibility,  to  "sell  them  credit"  by 
making  a  definite  impression  on  their  minds  at  the  time  of 
sale  as  to  the  nature  of  the  obligation  they  have  undertaken; 
follow  up  collections  promptly  and  regularly;  and  base  your 
collection  appeals  on  a  careful  study  of  their  psychology. 

A  Thirty-day  Trial  of  a  Razor 

When  in  the  spring  of  1916  you  walked  into  your  local 
drug  store  to  buy  a  package  of  tooth-paste  you  were  astounded 
to  have  the  druggist  say  to  you  "By  the  way,  take  home  one 

336 


of  these  Auto-Strop  Safety  Razors  and  try  it  for  thirty  days. 
It  won't  cost  you  anything  and  if  you  don't  like  it  you  can 
return  it."  "What  do  you  mean?"  you  not  unnaturally  ex- 
claimed. "You  couldn't  sell  that  razor  again  after  I  returned 
it."  "I'll  take  my  chances  on  that,"  replied  the  druggist,  "and 
the  company  stands  right  behind  me.  They  believe  they  have 
absolutely  the  best  safety  razor  on  the  market.  They  have 
overcome  every  possible  objection  to  it;  and  they  are  so  con- 
fident it  will  give  satisfaction  that  they  have  authorized  me 
to  offer  it  to  you  under  these  terms." 

Perhaps  you  took  the  razor ;  perhaps  you  laughed  and  said 
you  were  afraid  to  risk  it,  and  then  you  may  have  noticed  that 
the  druggist  dropped  the  conversation  at  once.  At  any  rate, 
it  appears  from  the  accounts  of  druggists,  that  a  good  many 
thousand  men  in  the  United  States  carried  the  razor  home 
and  kept  it  and  spread  their  faith  in  it  to  other  shavers. 

The  plan  is  said  to  have  originated  in  the  marketing  genius 
of  Bevan  Lawson,  at  present  marketing  manager  for  the 
Squibb  Pharmaceutical  Company.  Dealers  had  long  believed 
in  the  razor,  but  consumers  took  only  a  languid  interest.  When 
the  trial  plan  was  adopted  dealers  were  instructed  not  to  force 
sales ;  the  managers  of  one  chain  of  drug  stores,  who  wanted 
at  first  to  give  a  bonus  for  every  razor  placed  in  the  hands  of 
a  customer,  were  emphatically  refused.  The  druggist  usually 
knows  his  customer  and  can  select  a  good  credit  risk.  In  the 
great  majority  of  instances  the  razor  returned  had  the  seal 
unbroken,  showing  how  carefully  the  buyer  had  considered 
his  credit  obligation.  The  sales  of  the  company  are  said  to 
have  increased  enormously  and  their  advertising  still  features 
the  trial  ofiFer. 

Selling  Fish  on  Credit 

There  is  hardly  a  magazine  reader  in  the  United  States 
who  has  not  been  impressed  with  the  advertising  of  the  Frank 


fl      s 


i'   i 


!-;!•! 


'i 


B 


^v  : 


'^^1: 


338 


NEW    COLLECTION   METHODS 


E.  Davis  Company  of  Gloucester,  Mass.  Through  the  cour- 
tesy of  officers  of  the  company,  the  writer  is  enabled  to  tell 
the  story  of  the  safe-guards  thrown  around  their  extraordinary 
offers. 

From  the  advertising,  which  is  of  a  bright,  attractive 
character  appealing  strongly  to  people  of  refinement  whether 
their  means  are  large  or  small,  the  reader  gains  the  impression 
that  he  can  send  cash  with  his  order  without  fear  of  disap- 
pointment; but  if  he  prefers  the  convenience  of  a  charge 
account  and  can  give  satisfactory  references,  he  may  pay  by 
the  month.  Now,  bear  in  mind  that  the  local  fish  dealer, 
butcher,  or  grocer  has  plenty  of  trouble  in  collecting  from 
these  same  customers.  How  can  collection  be  made  success- 
fully by  a  "fish  man"  a  thousand  miles  away? 

To  begin  with,  the  goods  are  constantly  "resold"  to  the 
customer.  The  company  thinks  he  is  resold  every  time  he  has 
their  mackerel  for  breakfast.  If  his  stock  has  run  out  it  is 
only  a  few  weeks  before  a  tantalizing  letter  or  circular  is  re- 
ceived from  Gloucester,  and  the  man  of  the  house  exclaims, 
"My  goodness,  Maria,  let's  order  another  pail  of  mackerel. 
And  by  the  way,"  he  may  add,  "I  must  send  them  a  check 
for  their  last  bill.    They  sent  me  a  reminder  the  other  day." 

The  company's  own  account  of  their  operations  should 
increase  any  purchaser's  confidence  in  doing  business  with 
them. 

"In  the  first  place,"  they  say,  "our  customers  are  circular- 
ized from  lists  which  are  supposed  to  give  only  the  names  of 
financially  responsible  people.  Our  order  blanks,  which  go 
out  with  the  circulars,  stipulate  that  charge  accounts  will  be 
opened  only  if  suitable  references  are  furnished.  When  refer- 
ences are  not  given  and  from  the  appearance  of  the  order  it 
looks  as  if  the  prospective  customer  were  not  a  good  credit 
risk,  he  is  looked  up  in  Dun's,  in  the  Bankers'  Directory,  and 
in  the  various  other  rating  books,  and  if  he  is  not  given  in 


COLLECTING  MAIL-ORDER  ACCOUNTS 


339 


any  of  these,  a  report  is  procured  from  some  reporting  agency 
or  bank.  If  the  report  is  favorable,  the  order  is  shipped;  if 
not,  the  customer  is  asked  to  send  cash  in  advance  to  cover 
the  amount  of  his  order. 

"Last  October  we  began  a  new  system  of  advertising  in 
several  magazines,  offering  to  send  a  trial  pail  of  mackerel  or 
box  of  codfish  on  ten  days'  approval  if  the  prospect  would 
give  bank  or  business  references.  If  the  references  given  are 
good,  the  order  is  shipped  at  once.  If  the  references  given 
look  questionable,  the  order  is  carefully  studied.  Stationery, 
address,  handwriting,  in  fact,  everything  that  will  help  us 
determine  the  person's  responsibility,  are  taken  into  considera- 
tion. If  the  order  does  not  look  promising,  we  write  to  a  re- 
porting agency  or  bank  for  a  report,  or,  if  the  order  looks 
very  bad,  direct  to  the  person  ordering  for  cash.  In  cases 
where  no  reference  is  given  the  following  form  letter  is 
sent. 

Dear  Sir: 

You  are  going  to  be  mighty  well  pleased  with  the  pail  of  salt 
mackerel  from  Gloucester.  For  the  fish  are  some  of  the  finest  I've 
ever  seen— anybody  who  likes  salt  water  fish  can't  very  well  help 
being  delighted  with  them. 

When  you  sent  in  the  coupon  in  response  to  my  advertisement, 
you  omitted  to  give  your  business  connection  or  reference.  Prob- 
ably you  didn't  notice  it.  It's  such  a  little  thing  to  do,  however, 
that  I  feel  sure  you  won't  mind  accommodating  me  by  filling  it  in 

on  this  sheet. 

Then  return  this  letter  in  the  enclosed  envelope,  and  the  pail  of 
mackerel  that  I've  had  packed  for  you  will  be  on  its  way  soon. 

Very  truly  yours, 

"We  cannot  yet  tell  definitely  how  this  plan  is  going  to 
work  out  but  when  these  accounts  were  checked  up  in 
February,  we  found  that  only  about  7%  were  then  unpaid, 
many  of  which  were  not  yet  due. 

"From  3%  to  ij^%  of  our  surplus  has  been  reserved  to 


II 


iiiirr 


.1 


I 


h         t 


340 


NEW   COLLECTION   METHODS 


COLLECTING  MAIL-ORDER  ACCOUNTS 


341 


cover  the  loss  from  bad  bills.  Last  year,  however,  it  seemed 
that  1%  would  be  more  than  enough  to  cover  this  loss  for 
the  coming  year. 

"Our  accounts  are  handled  by  the  card  system  and  are 
filed  chronologically  by  weeks.  The  regular,  or  thirty-day 
accounts,  receive  a  statement  and  form  letter— thirty  days 
from  the  date  of  shipment,  if  shipped  by  express,  and  sixty 
days  from  date  of  shipment,  if  shipped  by  freight.  The 
ten-day  accounts,  or  memo  invoices,  as  we  call  the  special 
mackerel  and  codfish  accounts,  are  followed  up  ten  days 
from  date  of  shipment— though  now,  taking  into  considera- 
tion the  congested  condition  of  all  the  railroads,  we  have 
found  it  advisable  to  allow  twenty  days. 

"The  first  letter  reads  as  follows: 

Dear  Sir: 

There  are  a  good  many  things  on  our  list  that  you  haven't 
tried  yet.  We  hope  that  you  are  so  well  pleased  with  the  shipment 
sent  you  recently  that  you'll  let  us  make  you  acquainted  with  some 
of  our  other  products. 

Your  order  needn't  necessarily  be  a  large  one.  Just  list  the 
things  that  appeal  to  you  on  the  enclosed  order  blank  and  we'll  be 
glad  to  give  it  our  prompt  and  careful  attention. 

Probably  you  will  also  want  to  send  us  a  check  for  your  previous 
account,  so  we  are  enclosing  a  statement. 

Yours  very  truly, 

"The  second  letter  goes  out  two  weeks  from  the  date  the 
first  one  is  sent. 

Dear  Sir: 

Your  account  being  still  unpaid,  we  are  wondering  why  you 
are   withholding  remittance. 

This  being  your  first  shipment  of  goods  from  us,  we  are  hoping 
you  are  thoroughly  satisfied  as  we  want  you  to  become  a  regular 
customer.  Perhaps  you  have  not  had  time  to  use  all  the  goods, 
but  doubtless  you  have  satisfied  yourself  as  to  the  general  quality 
of  our  products.  Even  after  paying  the  bill,  if  you  have  any  com- 
plaint, we  will  be  perfectly  willing  to  make  adjustment. 


By  this  time  you  must  be  wanting  some  more  of  our  goods, 
so  send  us  your  order  when  remitting  and  we  will  be  very  glad 
to  fill  it  on  our  usual  terms. 

Yours  very  truly, 

"A  second  letter  to  old  customers  is  as  follows: 

Dear  Sir: 

Statement  of  your  account  was  sent  you  a  few  days  ago,  but 
we  have  heard  nothing  from  you.  Doubtless  the  matter  has  been  over- 
looked, and  we  would  not  bring  it  up  again  so  soon,  if  we  knew  that 
to  be  so.  However  it  may  be  that  something  in  this  last  order  has 
displeased  you.  If  so,  we  would  like  to  hear  from  you  at  once  so  as 
to  make  satisfactory  adjustment. 

If  you  want  more  of  our  goods,  send  us  your  order  when  re- 
mitting, and  it  will  be  promptly  and  carefully  filled. 

Yours  very  truly, 

"The  third  letter  is  sent  if  the  account  is  still  unpaid  two 
weeks  from  the  date  of  the  second. 

Dear  Sir: 

Your  account,  while  not  greatly  overdue,  has  gone  beyond  the 
30  days  we  allow  our  customers. 

We  have  written  you  twice  in  reference  to  it,  and  you  have 
not  yet  given  us  your  reason  for  withholding  remittance.  We  un- 
derstand that  it  is  easy  to  neglect  a  small  bill  and  that  sometimes 
circumstances  prevent  prompt  payment,  but  we  would  like  to  have 
you  write  us  anyway.  If  anything  is  wrong  with  the  goods,  we  want 
to  know  at  once.  If  not,  we  would  be  glad  to  receive  the  amount  due 
us  as  soon  as  possible. 

Yours  very  truly, 

"The  account  then  rests  two  weeks.  Then  two  or  three 
personal  letters  are  written  at  close  intervals  and  if  these  do 
not  work,  a  Merchant's  Credit  Guide  form  or  a  National 
Trade  Exchange  lo-days*  notice  is  sent,  which  usually  brings 
the  desired  results.  Only  as  a  last  resort  is  an  account  turned 
over  to  an  attorney  or  collection  agency  and  we  are  glad  to 
say  that  we  do  not  find  it  necessary  to  have  many  of  our 
accounts  collected  in  this  way." 


342 


NEW   COLLECTION   METHODS 


n 


w    1 


A  Triumph  for  Resale  Principles 

The  old-fashioned  credit  man  would  as  soon  think  of 
opening  the  window  and  walking  out  in  mid-air  as  of  carry- 
ing out  a  marketing  plan  like  that  of  this  seller  of  fish  from 
Gloucester.  Without  a  knowledge  of  resale  principles,  it 
would  be  impossible ;  but  with  that  knowledge,  the  marketing 
manager  walks  not  on  thin  air  but  on  a  scientific  knowledge 
of  the  principles  of  human  nature,  tested  and  proved  in  the 
crucible  of  experience. 


CHAPTER  XXXI 

COLLECTING  MAIL-ORDER  ACCOUNTS— AN 
UNUSUAL  CREDIT  RISK 

Goods  Sent  on  Approval 

The  man  who  sends  you  cigars  by  mail  and  lets  you  sample 
a  handful  before  deciding  whether  you  will  pay  him  or  not  is 
taking  chances  with  your  honesty — or  perhaps  that  is  the  way 
you  feel  about  it.  You  know,  however,  that  he  has  means  of 
his  own  for  being  satisfied  as  to  your  reliability  before  ship- 
ping his  goods.  If  his  cigars  are  satisfactory,  you  are  willing 
to  go  right  on  paying  for  them,  in  order  to  get  regular  ship- 
ments. 

One  such  company  several  years  ago  prepared  a  series  of 
twelve  letters  to  form  the  stages  of  its  collection  campaign. 
It  is  doubtful  if  the  company  has  improved  on  them,  despite 
the  various  alterations  they  have  passed  through  since  that 
time. 

The  first  letter  assumes  an  oversight  and  resells  the  goods 
at  the  same  time  that  it  asks  for  a  new  order. 

Dear  Sir: 

With  business  doing  flip-flops,  and  the  air  full  of  war-talk  and 
uncertainty,  it's  natural  to  overlook  so  small  a  thing  as  the  amount 
of  $ due. 

This  is  truly  a  thinking  time — and  how  can  a  man  think  better 
or  more  clearly  than  after  selecting  and  lighting  a  rich-flavored, 
mellow  cigar. 

If  youVe  reached  the  bottom  row  in  your  last  box,  the  enclosed 
envelope  is  just  in  time  to  bring  back  an  order  for  a  fresh  box  and 

your  check  for  $ 

Yours  very  truly, 

343 


I 
I 

III 


I 


344 


NEW   COLLECTION   METHODS 


i    ' 


The  second  letter  drops  the  resale  suggestion  and  con- 
centrates on  a  request  for  action. 

Dear  Sir: 

Up  to  this  morning's  mail,  I  had  been  expecting  your  remittance 
for  $ to  apply  on  the  amount  due  on  your  account. 

I  note  that  two  reminders  of  it  have  gone  to  you  but  perhaps 
they  failed  to  reach  you. 

Just  pin  a  check  or  a  money  order  to  the  enclosed  statement  and 
drop  it  in  the  mail  tonight.  You  may  use  the  envelope  enclosed  for 
Uie  purpose;  but  please  attend  to  it  before  you  forget  it. 

Yours  very  truly, 

The  third  letter  refers  to  some  item  relating  to  the  cus- 
tomer that  makes  the  letter  more  personal ;  asks  for  co-opera- 
tion, and  contains  suggestive  appeals  to  pride  and  fair  play. 

Dear  Sir: 

As (position) *  of  the Com- 
pany, you,  of  course,  know  that  it  is  necessary  to  "jog"  a  man  about 
his  accounts  occasionally.    Most  of  us  do — but  we'd  all  rather  not. 

We'd  rather,  of  course,  put  all  our  time  and  effort  into  improving 
our  service  and  spreading  the  fame  of  any  one  of  a  dozen  of  our 

pet  brands. 

I  started  to  write  you  about  your  account.     It  was  understood, 

you  know,  that  we  might  count  on  your  check  within  

(terms).     We    particularly    want   your    co-operation    in    keeping    it 

within  the  limit.     I  find  that  $ is  needed  now  to  square  the 

account  up  to  the  present  time. 

The  envelope  enclosed  will  serve  to  bring  me  your  check. 

Yours  very  truly. 

The  fourth  letter  is  shorter  and  contains  another  strong 
"co-operation**  appeal. 

Dear  Sir: 

You  have  been  so  good  about  co-operating  with  us  in  the  past, 
that  I  feel  we  may  rely  upon  you  now  to  help  us  maintain  your 
standard  of  payments  on  your  account. 


*To  be  filled  in  from  customer's  information  card. 


COLLECTING  MAIL-ORDER  ACCOUNTS  345 

Prompt  remittances  help  us  to  give  the  very  best  measure  of 
practical  service  to  you  and  to  others. 

If  you  will  let  me  have  your  check,  then,  to  cover  the 

bill  which  amounts  to  $ ,  you  will  be  helping  very  materially 

to  the  end  we  are  aiming  for. 

I  am  counting  on  your  continued  aid. 

Yours  very  truly. 

The  fifth  letter  tries  the  effect  of  an  appeal  to  the  desire  to 
succeed,  coupled  with  an  attempt  to  arouse  the  sense  of  shame. 

Dear  Sir: 

A  man  who  pays  an  old  account  proves  his  own  ability  to  over- 
come a  handicap. 

But  as  long  as  you  do  nothing  toward  the  payment  of  such  a 
past-due  obligation,  you  confess  to  yourself,  and  to  those  who  know 
you,  a  serious  weakness. 

Let's  help  you  to  clean  the  slate.  A  small  payment  weekly  or 
monthly  will  gradually  overcome  the  handicap  and  unless  you  make 
some  such  effort  to  recover  ground,  you  cannot  hope  to  win. 

Why  not  start  today? 

Yours  very  truly. 

The  sixth  letter  offers  an  instalment  payment  plan  and 
asks  as  a  measure  of  fair  play  that  the  customer  continue  to 
buy  cigars  from  the  man  who  has  treated  him  so  squarely. 

Dear  Sir: 

Simply  as  a  reminder  of  your  indebtedness  to  us,  I  enclose  a 
statement  of  your  account  now  long  overdue. 

If  you  cannot  fully  dispose  of  this  small  amount  just  now, 
send  us  something  on  the  account  each  week  or  each  month— say, 
$1  at  a  time. 

I  appreciate  the  fact  that  any  number  of  things  might  come  up 
unexpectedly  to  interfere  with  your  payment  plans.  That's  why 
I  want  to  make  it  as  easy  as  possible  for  you  to  take  care  of  your 
account  and  at  the  same  time,  feel  free  to  continue  sending  me  your 

orders. 

About  your  present  purchase — you  are  doubtless  buying  cigars 
somewhere.  Why  not  from  me?  I  feel  that  I  am  entitled  to  your 
patronage.    Don't  you? 

I  have  every  confidence  in  you  and  in  your  sincere  wish  to  meet 


'^  \ 


\  t 


I        ' 


346 


NEW   COLLECTION   METHODS 


me  half  way.  That  is  why  I  shall  look  for  a  definite  confirmation 
of  the  plan  I  suggest. 

Don't  forget  the  order  when  you  write. 

Yours  very  truly, 

The  seventh  letter  makes  a  frank,  straight-from-the- 
shoulder  appeal,  omitting  any  resale  element. 

Dear  Sir: 

A  glance  at  the  date  of  the  attached  statement  will  make  you 
realize  how  long  your  account  with  us  has  been  neglected. 

Put  yourself  in  my  shoes.  As  a  fair-minded  man,  you  will 
admit  that  I  have  shown  you  every  possible  consideration  in  this 
matter.  In  a  sincere,  straight-from-the-shoulder  way,  I  have  written 
you  about  your  account  time  and  time  again,  hoping  that  each  letter 
would  be  the  last  one  needed  to  bring  response. 

I  want  to  retain  your  friendship  and  good-will,  but  I  feel  that 
some  of  the  effort  to  do  so  should  come  from  you. 

Let's  put  an  end  to  all  this  uncertainty.  Meet  me  half  way  in 
this  effort  to  re-establish  cordial  relations.  A  letter  of  explana- 
tion or  a  check  for  $ from  you  is  all  that  is  needed.    Please 

do  not  disappoint  me  this  time. 

Yours  very  truly. 

The  eighth  letter  begins  by  representing  that  the  account 
has  passed  from  the  hands  of  a  subordinate  into  the  hands 
of  a  superior  officer.  He  offers  one  more  chance  for  an  ex- 
planation. 

Dear  Sir: 

A  memorandum  showing  how  you  have  neglected  your  account 

with  us,  amounting  to  $ was  placed  on  my  desk  this  morning 

together  with  the  folder  containing  your  correspondence  and  all  the 
orders  you  have  sent  us  so  far. 

Everything  about  our  past  relations  has  inspired  confidence  in 
your  integrity  and  your  ability  to  pay  the  amount  as  agreed  upon 
for  goods  ordered. 

There  must  be  some  change  in  your  circumstances  about  which 
I  have  not  been  told,  for  I  cannot  otherwise  understand  why  you 
have  permitted  your  account  to  go  so  long  unpaid. 

I  feel  that  if  there  is  an  explanation  to  be  made,  I  am  entitled 
to  have  it  and  I'm  writing  you  now  with  the  one  purpose  in  view 


COLLECTING  MAIL-ORDER  ACCOUNTS 


347 


of  asking  you  for  an  explanation  and  a  definite  idea  of  what  we 

may  expect  from  you,  and  when,  or  for  your  check  for  $ 

I  shall  expect  your  reply  in  the  envelope  enclosed. 

Yours  very  truly, 

The  ninth  letter  reminds  the  smoker  of  the  values  he  is 
losing  by  not  being  in  a  position  to  order  more  cigars;  the 
letter  presents  in  a  new  form  appeals  to  fair  play. 

Dear  Sir: 

You  have  not  replied  to  a  long  series  of  letters  and  reminders  of 
a  balance  due  us  on  your  account,  although  every  one  of  them  called 
for  and  deserved  a  response. 

I  don't  want  you  to  feel  that  we  are  in  any  way  treating  you 
unfairly  in  expecting  you  to  reply  promptly  to  our  letters  telling 
us  definitely  what  we  may  expect  from  you.  Our  attitude  toward 
you  has,  from  the  start,  been  one  of  consideration  and  I  am  glad 
to  say  that  we  are  always  anxious  to  maintain  that  attitude. 

We  want  to  make  it  possible  for  you  to  continue  to  get  the 
benefit  of  our  "factory  to  smoker"  quality  and  prices.  They  are 
worth  just  as  much  to  you  as  they  are  to  a  great  many  others. 
At  the  same  time,  I  do  not  feel  that  I  need  hesitate  about  asking 
you  to  say  now  what  you  expect  to  do  about  taking  care  of  the 
payments. 

Please  write  me  frankly.  Give  me  a  chance  to  co-operate  with 
you  on  some  plan  to  dispose  of  the  matter  without  further  waiting. 

Yours  very  truly, 

The  tenth  letter  demands  an  answer  and  seeks  to  arouse 
the  debtor's  sense  of  shame  by  its  introductory  request, 
"Please  do  not  postpone  longer  a  definite  reply,"  and  by  the 
sentence  which  shows  how  easy  it  is  for  the  smoker  to  write 
at  least  a  letter  of  explanation. 

Dear  Sir: 

Please  do  not  postpone  longer  a  definite  reply  to  our  numerous 
letters  and  reminders  of  the  amount  due  on  your  account  with  us. 

You  may  have  valid  reasons  for  your  failure  to  make  payments 
as  agreed.  Whatever  they  are,  we  are  entitled  to  know  them.  We 
are  always  ready  and  willing  to  make  reasonable  allowance  for  un- 
usual circumstances — even  to  the  extent  of  granting  further  credit 


♦^"^ 


348 


NEW   COLLECTION   METHODS 


;  t 


or  reducing  the  amount  due  by  small  payments  weekly  or  monthly, 
if  necessary — but  we  must  know  the  facts. 

It  is  so  very  easy  for  you  to  write  a  letter  to  explain  your 
apparent  neglect,  that  the  least  we  shall  expect  from  you  is  such 
an  explanation  of  your  silence  and  delay. 

We  cannot  afford  to  continue  longer  this  one-sided  correspond- 
ence.    The  explanation  of  your  silence  is,  therefore,  expected. 

I  must  ask  that  you  let  me  hear  from  you  at  once.     The  amount 

now  due  is  $ 

Yours  very  truly, 

The  eleventh  letter  is  a  novel  device  to  secure  attention 
and  to  appeal  to  the  savings  instinct  at  the  same  time.  It 
offers  the  customer  50  per  cent  of  the  amount  due  if  he  will 
pay  the  balance.  The  action  is  put  on  consistent  grounds. 
The  entire  business,  says  the  letter,  is  founded  on  good  faith 
and  friendship,  and  the  company  prefers  to  keep  it  on  that 
basis. 


i     ' 


; 


Dear  Sir: 

If  this  business  of  ours  wasn't  different — if  we  hadn't  unlimited 
faith  in  the  certainty  of  a  square  deal  from  every  one  of  our  cus- 
tomers, I  should  be  turning  your  account  over  to  a  collection  agency 
about  now. 

I'd  have  to  give  them  50  per  cent  of  the  amount  collected  and 
I  should  almost  certainly  lose  you  as  a  customer  because  of  the 
methods  such  people  employ. 

Well,  Fm  not  going  to  give  50  per  cent  of  what  you  owe  me 
to  any  such  agency.  Neither  do  I  want  to  lose  your  friendship  and 
good-will. 

I  don't  know  why  you  haven't  sent  me  what  you  owe  but  what- 
ever the  reason,  it  must  be  a  good  one.  Nevertheless,  I've  decided 
to  make  you  this  proposition:  Pay  me  50%  of  the  amount  of  the 
attached  statement  and  keep  the  other  50%  for  yourself.  If  there 
is  any  fairer  offer  I  can  make,  I  don't  know  what  it  is. 

As  soon  as  I  get  your  check  for  half  the  amount  you  owe  me, 
I  shall  credit  your  account  with  the  other  half  too — I'll  send  you  a 
receipt  in  full. 

Enclose  a  check  for  your  50%  before  I  have  a  chance  to  change 
my  mind. 

Yours  very  truly. 


COLLECTING  MAIL-ORDER  ACCOUNTS 


349 


The  twelfth  (last)  letter  is  interesting  despite  the  many 
valid  reasons  which  can  be  urged  against  it.     It  is  nothing 
more  nor  less  than  a  free  gift  to  the  customer  of  the  amount 
of  his  bill.     It  is  more  than  possible  that  a  man  so  treated 
might  "try  it  again"  under  a  different  name,  or  get  one  of  his 
friends  to  make  the  attempt  in  the  hope  of  getting  cigars  for 
nothing.     Instalment  and  mail-order  houses  are  nearly  agreed 
that  it  is  not  worth  while  to  retain  the  good-will  of  a  cus- 
tomer whose  account  has  been  seriously  delinquent.     Under 
no   circumstances   would   they   sell   such   a  customer   again. 
Moreover,  they  claim,  there  is  always  the  chance  that  a  delin- 
quent account  may  be  collected,  even  after  it  has  been  charged 
off  the  books,  so  that  to  give  up  one^s  right  in  the  account 
would  mean  a  very  real  possibiUty  of  money  loss  besides  en- 
couraging the  dishonest  purchaser  to  attempt  to  secure  goods 
without  paying  full  price  for  them. 

Dear  Sir: 

For  a  good  many  years  past,  I  have  been  dealing  through  the 
mails  with  thousands  and  thousands  of  men  all  over  this  country. 

My  experience  has  proved  to  me  net  once,  but  almost  invariably 
that  most  men-over  99/2%-are  honest.  They  carry  out  their 
agreements— pay  their  debts. 

The  amount  of  $ which  has  been  due  us  from  you  since 

and  about  which  I  have  written  you  a  dozen  times, 
is  a  just  debt  for  cigars  ordered  by  you  and  delivered  to  and  con- 
sumed by  you.  There  is  only  one  thing  left  for  me  to  do.  I  have 
told  you  why  I  do  not  feel  that  I  care  to  place  this  account  in  the 
hands  of  an  attorney  or  follow  any  one  of  a  number  of  disagree- 
able procedures  which  would  be  the  usual  practice. 

I  am  simply  going  to  assume  that  you  are  right  and  I  am  wrong- 
that  for  some  reason,  unknown  to  me,  you  have  satisfied  your  own 
sense  of  what  is  just  and  that  you  really  are  convinced  that  you 
do  not  owe  me  for  the  cigars  shipped. 

Having  reached  this  conclusion,  I  enclose  with  this  letter  a  re- 
ceipt in  full  for  the  amount  of  your  account.  You  may  consider, 
then,   that   this   is  my   last   letter   to  you   and   that   the   account   is 

closed. 

Yours  very  truly, 


350 


NEW    COLLECTION    METHODS 


m^ 


i 


Criticism  of  the  Series 

In  judging  the  merit  of  the  preceding  chain  of  letters,  it 
must  be  remembered  that  the  credit  hold  on  the  customer  was 
exceedingly  slight  and  that  since  the  company  secured  the 
names  of  most  of  its  new  customers  through  the  recommen- 
dation of  satisfied  customers,  the  retention  of  good-will  was 
important  to  their  business.  Resale  material  and  appeals  to 
good-will  were  therefore  adopted  as  the  chief  elements  of  the 
collection  theory.  It  is  probable,  however,  that  more  "teeth" 
could  have  been  put  into  the  series  without  injuring  it.  More- 
over, there  is  considerable  similarity  in  the  tone  of  several  of 
the  letters ;  perhaps  more  use  could  have  been  made  of  the 
principle  of  surprise.     (See  page  177.) 


I- 


CHAPTER   XXXII 

INSTALMENT  COLLECTIONS- 
CORRESPONDENCE  COURSES 

Credit  Risks  Under  the  Instalment  Plan 

A  firm  doing  an  instalment  business  has  determined  on 
that  merchandising  plan  as  the  best  method  for  disposing  of 
the  goods.  The  heavy  credit  risks  involved,  the  necessity  for 
carrying  a  great  number  of  relatively  small  accounts  for  a 
considerable  period,  the  labor  and  expense  of  collecting,  all 
have  been  estimated  in  advance,  and  have  been  accepted  as 
necessary  parts  of  the  merchandising  plan. 

One  or  two  reasons  for  undertaking  an  instalment  business 
are  pertinent  to  the  purpose  of  this  book.  It  is  adopted  as  the 
means  of  sale  because  it  extends  the  market  of  the  seller.  A 
house  of  high  prestige,  which  has  been  selling  by  other 
methods,  may  be  convinced  that  a  new  and  large  class  of  pur- 
chasers can  be  reached  by  adopting  the  instalment  plan  on 
some  or  all  of  its  lines.  Another  house  may  have  possible 
customers  eager  to  buy  its  goods,  but  unable  to  pay  for  them, 
whether  they  be  necessities  or  luxuries,  in  a  lump  sum. 

The  day  has  passed  when  buying  goods  on  the  instalment 
plan  was  a  term  of  reproach.  The  success  of  the  movies,  the 
five  and  ten  cent  stores,  and  other  similar  enterprises  has 
taught  us  the  vast  market  which  lies  at  the  door  of  the  seller 
who  can  supply  values  for  small  payment.  It  is  therefore  the 
part  of  the  wise  merchandiser,  in  his  survey  of  his  goods  and 
the  market  for  them,  to  determine  also  whether  a  plan  of  in- 
stalment selling  cannot  profitably  be  added  to  his  present 
operations. 


I 


'  * 


h 


352 


NEW    COLLECTION   METHODS 


INSTALMENT    COLLECTIONS 


353 


n' 


h  ) 


In  adopting  such  a  course  the  advice  and  services  of  the 
collection  and  credit  managers  are  vital.  Trained  to  estimate 
credit  risks,  skilled  in  methods  of  educating  salesmen  and 
customers  into  habits  of  reliability,  they  are  important 
strategists  in  planning  the  campaign  which  is  to  move  forward 
into  new  territory,  and  in  carrying  it  forward  with  a  minimum 
of  loss. 

Any  house  which  enters  an  instalment  plan  for  sale  with- 
out thorough  canvass  and  preparation  in  the  departments  of 
credit  and  collection  is  headed  for  disaster.  On  the  other 
hand,  any  house  which  makes  use  of  the  experience  of  the 
capable  leaders  in  this  field,  can,  under  proper  conditions, 
carry  through  an  instalment  plan  with  success. 

Correspondence  School  Collections 

The  principle  of  continual  resale  lies  behind  the  success  of 
the  correspondence  schools  which  sell  to  their  subscribers  not 
only  a  set  of  books  to  be  paid  for  on  the  instalment  plan,  but 
sell  also  the  service  consisting  of  lectures,  assignments,  etc., 
each  one  of  which  is  so  prepared  as  to  encourage  the  sub- 
scriber to  continue  his  work  in  the  course. 

The  collection  department  of  one  such  organization  has 
two  divisions,  the  collection  division  and  the  credit  division. 
The  first  handles  all  good  accounts  and  a  considerable  part  of 
the  routine  of  the  second.  If  a  subscriber  falls  behind  in  his 
payments,  he  is  considered  good  for  two  months — if  he  is 
on  a  six-day  mailing  schedule.  If  he  makes  a  payment,  he  is 
reinstated.  If  he  again  becomes  delinquent  after  three  re- 
minders, his  account  is  put  on  probation.  All  delinquent  and 
probation  accounts  and  all  correspondence  from  subscribers 
in  connection  with  good  accounts  are  handled  by  the  credit 
division.  As  soon  as  an  account  comes  to  the  credit  division 
from  the  collection  division,  reports  and  information  are 
obtained  at  once  from  every  possible  quarter.     Salesmen  are 


written  to  and  local  attorneys  consulted.  All  this  is  in  addi- 
tion to  the  reports  made  by  the  salesman  at  the  time  of  sale. 
The  attitude  of  the  company  is  distinctly  personal  with 
each  customer ;  each  case  is  treated  on  its  merits  and  good-will 
is  safeguarded  by  unusual  leniency.  Cancellations  are  never 
allowed  because  the  company's  contract  forces  it  to  pay  out 
money  at  once  for  books,  service,  etc. 

Every  letter  works  for  a  reply  as  well  as  for  a  payment 
in  order  to  increase  the  personal  touch  with  the  customer. 
The  usual  reasons  given  for  non-payment  are,  that  the  sub- 
scriber has  no  time  to  read  the  course,  he  has  no  money,  he 
has  been  ill,  he  is  out  of  a  job,  he  has  suffered  an  accident, 
he  is  dissatisfied ;  or  he  gives  evidence  of  having  lost  his 
ambition.  The  company  may  suggest  a  reduction  in  the  pay- 
ment schedule,  or  a  brief  extension  of  time.  It  urges  that 
he  is  bound  for  his  own  sake  as  well  as  the  dealer's,  to  live 
up  to  his  contract,  ''Every  letter  that  we  write/'  says  the  credit 
manager,  'Hs  a  selling  letter" 

This  company  has  found  it  advisable  to  use  a  letter  of  the 
type  described  on  page  2x6  over  the  signature  of  the  treasurer. 
It  also  employs  its  own  collection  agency.  A  reference  to 
an  attorney  has  been  found  inexpedient  because  it  destroys 
good-will.  It  is  used,  however,  when  no  answer  is  received, 
or  when  the  custon:er  is  defiant,  avows  his  intention  to  revoke 
his  contract,  or  break  his  promises. 

Certain  interesting  points  in  the  collection  procedure  are 
worthy  of  note.  The  company's  acknowledgment  of  the  initial 
payment  and  the  letter  describing  the  terms  of  payment,  both 
take  occasion  to  resell  the  course  and  the  credit  obligations. 
A  printed  folder  containing  a  fresh  and  interesting  example 
of  the  value  some  subscriber  has  found  in  the  course  is  mailed 
with  every  bill  and  with  all  reminders.  This  is  remarkably 
effective  in  maintaining  promptness  in  good  customers.  If 
any  payment  from  a  subscriber  is  accompanied  by  a  letter. 


|i 


w 


!    I 


I 


354 


NEW   COLLECTION  METHODS 


acknowledgment  is  made  in  a  letter  which  contains  a  newsy 
paragraph  of  resale  material. 

A  printed  form  is  used  for  a  second  reminder: 

Dear  Sir: 

Just  a  reminder  that  the  current  payment  of  $ on  your  ac- 
count is  overdue. 

Don't   bother  to  explain;   we   know   how   these   things   get  by. 
Please  attach  your  remittance  to  the  stub  and  send  it  along  today. 

Cordially  yours, 

If  you  have  already  remitted  by  the  time  this  reaches  you,  please 
disregard  this  reminder. 

The  stub  contains  the  sentence: 

Please   tear  off  this   stub   and  return   it  with  your   remittance  ; 
it  will  facilitate  the  proper  crediting  of  your  account. 

When  an  account  is  giving  trouble,  a  special  letter  is  sent 
the  subscriber  from  the  service  department,  reselling  the 
course,  but  making  no  reference  to  the  overdue  account. 

Typical  letters  employed  by  this  company  are  the  follow- 
ing. Their  breezy,  cordial  style  suggests  action  and  prevents 
offense. 

"Spring  cleaning"  letter: 

Dear  Sir: 

^  "Spring  cleaning"  is  not  just  a  matter  of  household  routine. 
Its  an  annual,  nationwide  movement  to  clean  up  everythine— the 
house,  the  office,  the  city. 

In  harmony  with  this  spirit,  you  want  to  "clean  up"  the  $ 
on  this  month's  fee. 

It  won't  be  necessary  to  write  a  letter.     Just  pin  your  check  to 
the  statement  enclosed  and  send  it  along  in  the  envelope  within. 

Yours  very  truly, 

"Do  the  first  thing  first"  letter: 

Dear  Sir: 

A  busy  editor  was  asked  recently  how  he  managed  to  carry  on 
an  extensive  correspondence,  write  several  thousand  words  a  day. 


W 


INSTALMENT   COLLECTIONS 


355 


and  then  deliver  a  talk  in  the  evening.    His  answer  suggests  a  good 
plan  for  everyone.    It  was  this:    "I  do  the  first  thing  first,  and  then 

keep  right  on  doing."  ,      ,    r      «^ 

Why  not  begin  "doing"  today  by  writing  your  check  tor  ^ 

to  cover  the  current  payment  on  your  enrolment  fee? 
The  envelope  enclosed  is  at  your  service. 

Very  truly  yours, 

"Bank  draft"  letter  No.  i : 

Dear  Sir:  ,  •  • 

Unless  you  remind  a  man  pretty  often  when  a  remittance  is 
overdue,  the  next  payment  date  comes  around  before  he  knows  it. 
Then  there  are  two  payments  to  make  at  one  time. 

Take  your  own  case,  for  example.  Five  reminders  have  already 
been  sent  you  of  the  past-due  payments.  Up  to  this  morning  no 
response  has  been  received  from  you  in  answer  to  any  one  of  them. 
No  doubt  you  have  either  been  too  busy  to  attend  to  it  before 
this  or  you  may  have  been  out  of  town.  So  as  to  make  it  as  easy 
for  you   as   possible   to  bring  your   account  up   to   date,   however, 

we  shall  deposit  a  draft  for  $ in  your  local  bank  to  cover  the 

and   fees,  unless  your  remittance  or  instructions  not 

to  draw  reach  us  by  return  mail. 

Yours  very  truly, 

"Bank  draft"  letter  No.  2: 

Dear  Sir: 

Inasmuch   as   we   have   not   heard    from   you   in    reply   to   our 

letter  of    ,  we  take  it  for  granted  that  you  want 

us   to   draw    upon   you    through   your   local   bank. 

Accordingly,  we  have  today  drawn  a  draft  on  your  bank  for 

$ covering  the   fee.     The  bank  will  notify 

you  when  the  draft  arrives. 

If  for  any  reason,  you  prefer  to  remit  direct,  a  return  envelope 
is    enclosed    for   your    convenience    in    doing   so. 

Yours  very  truly, 

"Unpaid  draft"  letter: 

Dear  Sir: 

Needless  to  say,  we  are  surprised  to  find  that  our  recent  draft 
for  $....  to  cover  the  past-due  payment  on  the  enrolment  fee  is  still 
unpaid. 


II 


356 


NEW   COLLECTION   METHODS 


INSTALMENT    COLLECTIONS 


357 


Either  the  bank  has  been  very  slow  in  reporting  the  collection 
to  us,  or  you  refused  the  draft. 

If  you  paid  the  draft,  we  shall  appreciate  very  much  your  writ- 
ing and  telling  us  when  the  draft  was  presented,  so  that  we  may 
be  in  a  position  to  follow  up  the  bank.     If,  on  the  other  hand,  you 

refused  the  draft  we  must  ask  you  to  send  us  a  check  for  $ at 

once,  to  bring  your  account  up  to  date. 

Please  write  us  today. 

Yours  very  truly, 

"Keep  your  promise"  letter: 

Dear  Sir: 

This  is  to  remind  you  of  the  promise  contained  in  your  letter 

of to  pay  us  $ a  month  after 

for  the  accumulated  balance  on  your  enrolment  fee. 

Please  do  not  disappoint  me;  but  place  your  check  for  $ 

in  the  envelope  enclosed  and  see  that  it  is  mailed  promptly.  I  am 
counting  on  you  to  keep  your  promise. 

Sincerely  yours. 

The  customer  has  asked  to  be  released  from  his  contract, 
pleading  special  circumstances.    The  treasurer  replies: 
The  treasurer's  letter  No.   i: 

Dear  Sir: 

I  can  readily  appreciate  that  under  the  circumstances  you  men- 
tion there  are  many  demands  on  your  pocketbook  and  that  it  will 
mean  a  good  deal  of  a  sacrifice  to  maintain  the  regular  tuition  pay- 
ments due  to  us. 

It  is  natural  perhaps  that  in  thinking  of  retrenching,  the  first 

thing  you  hit  upon  is  the  monthly  payment  of  $ due  on  the 

Course. 

But  right  there,  Mr.    ,  is  where  you  make   a 

serious  mistake. 

When  you  stop  to  think  about  it,  the  Course 

if  ever  needed  is  needed  now;  it  fortifies  you  against  just  such  cir- 
cumstances as  you  describe. 

Rightly  and  persistently  followed  it  will  gradually  broaden  and 
deepen  your  knowledge  of  the  essentials  of  business  and  put  into  your 
hands  the  equipment  of  tools  by  which  you  can  carve  out  a  niche 
for  yourself  that  no  one  can  crowd  you  out  of. 


It  would  certainly  be  short-sighted  on  your  part,  now  of  all 
times  to  stop  in  your  time  of  need  and  literally  kick  out  from  under 
your  'feet  the  ladder  by  which  you  will  be  able  to  climb  to  better 

things.  ,11 

I  know  how  you  feel  about  gradually  gettmg  behmd  on  pay- 
ments, and  I  am  glad  you  wrote  to  me  as  you  did,  because  we  can 
get  together  and  arrange  matters  so  that  you  may  yet  keep  m  good 

standing  with  us. 

Suppose  you  tell  me  how  much  you  can  send  each  month  from 
now  on,  without  undue  strain  on  your  resources.  Then  I  shall  try 
to  meet  you  half-way  and  we  can  continue  as  before  to  our  mutual 

advantage.  , 

I  can  promise  to  do  almost  anything  in  the  way  of  an  adjust- 
ment of  terms  to  your  present  condition,  except  allow  a  cancella- 
tion.    Don't  ask  me  to  do  that,   for  the  contract  expressly   forbids 

it.  ,  . 

Think  this  matter  over  in  the  light  in  which  I  have  presented  it 

to  you,  and  you  will  agree  with  me  I  am  sure. 

I  shall  expect  to  hear  from  you  by  return  mail  in  order  that  I 
may    make    the    arrangements    necessary    for    taking    care    of    this 

matter. 

Sincerely  yours, 

The  treasurer's  letter  No.  2: 

Dear  Sir: 

When  I  told  you  in  answer  to  your  recent  letter  that  we  could 
not  release  you  from  the  enrolment  entirely,  I  took  the  trouble  to 
explain  that  we  are  ready  to  arrange  any  reasonable  plan  to  take 
care  of  the  future  payments  on  the  fee  and  to  insure  your  use  of 
the  Course.  I  asked  you  to  say  definitely  and  frankly  what  the 
situation  was,  so  that  we  might  know  what  to  count  on. 

So  far  you  have  not  even  acknowledged  that  letter. 

It  IS,  of  course,  impossible  for  us  to  appreciate  fully  the  con- 
ditions under  which  you  are  working  unless  you  tell  us.  Inasmuch 
as  you  have  asked  a  very  great  favor,  and  inasmuch  as  we  have  ex- 
pressed our  willingness  to  do  everything  possible,  short  of  a  cancel- 
lation, to  aid  you,  the  least  we  may  expect  in  return  is  a  prompt 
statement  of  the  facts. 

Please  do  not  ask  us  to  wait  longer  for  this  statement  if  you 
want  any  further  consideration  extended  to  you.  Use  the  enclosed 
envelope  and  write  today. 

Sincerely  yours. 


358 


NEW   COLLECTION   METHODS 


*»«. 


The  "reason  why"  letter: 

Dear  Sir: 

There  must  be  a  reason  why  you  have  not  sent  us  the  pay- 
ments on  the  enrolment  fee. 

What  is  it? 

If  you  have  been  out  of  town,  that  would  explain  your  silence 
in  response  to  our  letters  and  reminders.  If  you  have  been  hard 
pressed  financially,  that  would  also  explain  matters. 

But  you  haven't  written,  and  we  do  not  know  what  to  think. 
We  can  offer  no  basis  on  which  to  meet  you  half-way  to  overcome 
the  difficulties  until  you  take  us  into  your  confidence. 

We  do  not  want  to  annoy  you  with  a  lot  of  letters  about  these 
comparatively  small  payments.  We  do  think,  however,  that  we  are 
entitled  to  what  is  justly  due  us,  and  we  feel  that  our  letters  de- 
serve better  attention  from  you  than  they  have  been  getting. 

When  you  answer  this,  enclose  a  check  for  $ which  will 

put  your  account  in  good  standing. 

Let's  get  together  right  now  to  make  our  future  relations  cordial 
and  mutually  satisfactory. 

Sincerely  yours, 


(( 


Business  tools"  letter: 


Dear  Sir: 

What  would  you  think  of  a  man  who  had  paid  all  but  $ 

on  an  equipment  of  business  tools  which,  if  rightly  used,  should 
be  helping  him  to  double  or  triple  the  amount  of  his  present  income? 
What  would  you  think  of  a  man  who  is  willing  to  give  up  his  right 
to  use  such  an  equipment,  perhaps,  because  of  non-payment  of  so 
small  an  amount  as  $ 

Isn't  this  your  case  ?     Here  you  are  with  only 

more  payments  to  make  on  your  enrolment  to  own  the  right  to  it, 
free  and  clear  without  any  further  obligation.  Why  mar  the  en- 
joyment and  practical  usefulness  of  information  that  may  well  be 
considered  priceless  to  you,  simply  because  you  owe  something  on 
it? 

You  are  not  doing  justice  either  to  yourself  or  to  us.  We  ac- 
cepted your  enrolment  on  a  strictly  "pay  when  due"  basis.  We 
trust  you.     Show  us  then  that  our  faith  has  not  been  misplaced. 

$ will  take  away  any  further  excuse  for  bothering  you 

about  payments. 

Sincerely  yours, 


INSTALMENT   COLLECTIONS 


359 


"Fair  treatment"  letter: 

Dear  Sir :  r         .       ^•      ^u^ 

Please  tell  me  just  what  your  reasons  are  for  not  making  the 

payments  on  your  enrolment   for  the    ;  •••••*;    bourse  as 

agreed      Surely  you  have  not  intentionally  neglected  them,      ihere 
must  be  some  good  reason  why  we  haven't  heard  from  you  for  such 

a  long  time. 

When  you  enrolled,  you  in  turn  obligated  yourself  to  send  us 
$ each  month,  commencing You  have  made 

no  payments  since.  r   ^1       r     «. 

This  is  hardly   fair   treatment,   especially   in   view   of   the    fact 

that  we  have,  to  the  best  of  our  belief,   fully  performed  our  part 

of  this  mutual  contract. 

We  always  try  to  accommodate  our  subscribers  when  we  know 
the  facts  but  there  has  already  been  too  long  a  delay  in  payments 
due  us  and  you  have  made  no  effort  to  explain  it.  Please  send  me 
a  check  for  at  least  part  of  the  amount,  in  the  envelope  enclosed 

I  can  arrange  for  you  to  start  again  making  regular  monthly 
payments  from  now  on  if  you  can  give  me  assurance  that  you  will 
do  your  part.  This  offer  will  not  be  held  open  indefimtely.  Unless 
we  hear  from  you  by  return  mail  we  shall  be  justified  in  taking  more 

aggressive  action. 

Sincerely  yours, 

"Entitled  to  an  acknowledgment"  letter: 

Dear  Sir: 

You  have  not  acknowledged  receipt  of  my  letter  of 

although  it  asked  for  and  deserved  a  response. 

I  feel  that  we  are  entitled  to  an  acknowledgment  from  you  at 
least.  The  fact  that  none  has  been  forthcoming  from  you  is,  no 
doubt,  due  to  a  good  reason,  if  we  only  knew  it. 

Please  answer  this  letter  promptly.  Let  me  know  what  plan 
you  have  to  offer  for  taking  care  of  the  balance  of  your  account, 
in  the  most  convenient  way  for  you.  Further  accommodation  in 
the  matter  is  dependent  on  a  prompt  reply  from  you,  however. 

Sincerely  yours. 

The  president's  letter: 

Dear  Sir: 

Since  your  payment  of  $ on  ,  Mr.  Wil- 
liams tells  me  that  there  has  been  no  reduction  of  the.  balance  of 


<  •! 


36o 


NEW   COLLECTION   METHODS 


your  enrolment  fee,  which  at  the  present  time  is  $ in  arrears. 

Because  I  like  to  keep  in  touch  with  subscribers,  I  have  person- 
ally looked  up  the  facts  in  vour  case,  with  a  view  of  getting  at  the 
real  cause  of  the  trouble. 

We  have  tried  to  settle  your  indebtedness  to  us  again  and  again. 
We  have  waited  patiently  for  you  to  come  forward  with  some  rea- 
sonable proposition.     But  you  have  not  met  us  half-way. 

We  feel  that  a  further  continuation  on  this  basis  would  be 
neither  good  business  nor  good  sense.  If  we  do  not  hear  from  you 
in  response  to  this  letter  we  shall  turn  the  account  over  to  a  col- 
lection agency.  This  statement  is  not  intended  as  a  threat  but  simply 
to  get  all  the  facts  before  you. 

Before  taking  this  action  we  feel  that  perhaps  there  is  some- 
thing to  be  said  on  your  side.  You  may  have  cause  for  complaint 
against  us.  There  may  be  some  good  personal  reason  for  your  atti- 
tude that  you  have  not  cared  to  reveal.  If  there  is  anything  to  be 
said  I  should  like  very  much  to  hear  from  you.  I  assure  you  that 
I  shall  read  your  letter  in  a  spirit  of  fairness.  Are  you  willing  to 
write  in  the  same  spirit? 

We  are  as  anxious  as  you  are  for  a  friendly  settlement  of  this 
account.  Such  a  settlement  is  still  possible  if  you  feel  the  same 
way  but  it  must  be  made  without  further  delay. 

May  I  count  on  hearing  from  you  promptly? 

Sincerely  yours, 


President 


"Credit  reputation"  letter: 


Dear  Sir: 

When  you  ask  credit  of  your  local  bank,  you  expect  to  meet 
your  notes  promptly  on  the  day  they  fall  due.  You  can't  aflford  to 
do  otherwise,  if  you  care  anything  for  your  credit  reputation. 

When  you  enrolled  for  the  Course  you  ac- 
cepted a  definite  credit  accommodation  which  we  were  willing  to  ex- 
tend on  your  promise  to  fulfil  your  obligations  promptly  at  the  time 
set 

We  have  written  you  repeatedly  since  you  enrolled.  We  look 
to  you  for  the  fulfilment  of  your  part  of  the  agreement  at  once. 

The  time  has  come  now  when  we  must  ask  that  you  take  the 

necessary  action  to  reduce  the  balance  on  your  account.     $ 

is  now  due. 

Sincerely  yours, 


INSTALMENT    COLLECTIONS 


361 


"Immediate  attention"  letter: 


Dear  Sir: 

Your  account  requires  special  and  immediate  attention.  You 
have  neglected  it  so  badly  that  we  must  insist  upon  prompt  action. 

Your  last  payment  arrived   $ is  now 

overdue.    We  have  not  even  had  a  reasonable  explanation  or  partial 
payment. 

You  can't  expect  us  to  carry  the  account  indefinitely.  We  can't 
aflford  to  continue  a  one-sided  correspondence.  Unless  we  hear  from 
you  at  once,  we  shall  be  obliged  to  turn  the  account  over  without 
further  delay  to  our  local  collection  representative. 

Please  do  not  ask  for  more  time,  but  send  your  remittance  now 
in  the  envelope  enclosed.     Get  started  right  this  month. 

Sincerely  yours, 

Registered  letter  follow-up: 

Dear  Sir: 

No  reply  has  been  received  to  my  registered  letter  of 

,  although  I  know  it  reached  you  for  we  have  in  our  possession 

a  post-office  receipt  bearing  your  signature. 

Unless  you  are  willing  to  respond  more  promptly  to  our  letters 
in  which  we  have  endeavored  to  co-operate  with  you  on  a  plan  for 
taking  care  of  the  payments,  we  shall  have  to  cease  further  efforts 
in  your  behalf  and  just  simply  press  the  matter  for  collection. 

You  make  no  effort  whatever  to  dispose  of  the  matter.  You  do 
not  reply  to  our  letters  and  the  point  has  now  been  reached  where 
it  seems  useless  to  continue  further  in  this  very  unsatisfactory  way. 

Unless  you  dispose  of  this  matter  promptly,  within  ten  days 
after  receipt  of  this  letter,  we  shall  be  obliged  to  use  other  means  for 

collecting  the  balance  of  $ from  you.     We  very  much  regret 

that  you  have  forced  this  alternative  upon  us,  but  we  see  no  other 
way  out  of  the  diflficulty. 

Sincerely  yours. 


I 


't 


^. 


INSTALMENT    COLLECTIONS 


363 


t 


CHAPTER  XXXIII 

INSTALMENT  COLLECTIONS- 
GENERAL  PUBLICATIONS 

Selling  Books  on  the  Instalment  Plan 

One  of  the  most  justly  esteemed  publishers  in  America 
handled  in  the  year  19 17  forty  thousand  instalment  accounts 
of  men  and  women  who  had  purchased  books  by  mail.  His 
largest  set  sells  for  nearly  $150,  with  monthly  instalments 
running  for  two  years.  The  average  instalment,  however,  is 
$3  a  month,  and  it  is  desired  to  have  every  proposition  mature 
in  eleven  months,  and  be  settled  within  a  year.  A  sale  less 
than  $15,  in  the  opinion  of  the  credit  manager,  is  hardly  profit- 
able on  the  instalment  plan,  considering  the  expense  of 
handling,  which  is  as  great  as  in  the  case  of  a  larger  sale, 
while  the  credit  risk  is  worse. 

The  instalment  plan  is  the  only  way  in  which  sets  of  books 
can  be  sold.  Accordingly,  this  house  has  estimated  its  risks 
and  losses,  verified  them  from  experience,  and  determined  its 
marketing  plan,  including  price,  to  correspond.  The  out- 
standing features  of  its  qualities  as  they  affect  collection  are: 

1.  Conservative  sales  and  advertising  policies. 

2.  Service  accompanying  many  books,  showing  how  to 

use  them. 

3.  Reports  on  all  new  accounts. 

4.  Courteous  treatment  in  the  early  stages  of  collection ; 

severe  treatment  later. 

5.  Ledger  cards  with  follow-up  notations  on  the  back. 

The  advertising,  while  highly  attractive,  makes  no  exag- 
gerated claims,  and  the  terms  of  sale,  including  the  return  of 

362 


the  books  or  payment  at  the  end  of  a  definite  approval  period, 
are  carefully  stated  in  the  coupon  which  purchasers  send  in. 

Obtaining  Credit  Information 

Where  reports  on  new  accounts  cannot  be  obtained 
through  representatives  of  the  company,  the  services  of  an 
individual  attorney,  not  an  agency,  are  employed.  In  towns 
under  5,000  population,  where  an  agency  would  be  useless, 
a  most  interesting  device  is  used.  An  attractive  form  letter, 
together  with  a  blank  form,  is  sent  to  the  chief  of  police  or 
the  justice  of  the  peace  in  the  town,  offering  a  small  article 
of  personal  use,  an  electroplate  of  which  is  enclosed,  in  return 
for  the  information  asked  on  the  blank.  Though  the  cost  of 
the  article  supplied  is  small,  it  is  of  good  value,  and  the  appeal 
to  the  desire  of  securing  something  for  nothing  is  sufficient 
to  secure  a  satisfactory  report.  Each  inquiry  imder  this  plan 
costs  the  company  eleven  cents. 

Beginning  Gently 

With  a  view  to  avoiding  trouble  on  later  instalments,  and 
retaining  good-will  as  a  basis  for  the  sale  of  other  books, 
mild  letters  are  used  in  the  early  stages  of  collection.  The 
follow-up  system  provides  for  fifteen-day  intervals,  and  con- 
sists of  a  first  and  second  notice  accompanying  statements, 
followed  by  four  multigraphed  form  letters.  Frequently  a 
special  cash  offer  is  made  with  the  second  statement,  to  in- 
duce prompt  payment.  If  at  the  end  of  three  months  no  pay- 
ment has  been  made,  the  account  is  charged  up  as  a  loss  to 
the  department  against  its  reserve.  Individually  typed  letters, 
based  on  a  paragraph  form-book,  are  then  employed  for  col- 
lection, and  anything  secured  after  this  time  is,  of  course, 
put  into  the  reserve.  The  life  of  all  forms  is  three  months, 
after  which  they  are  revised,  so  that  no  delinquent  ever  re- 
ceives the  same  form  twice. 


3^4 


NEW  COLLECTION  METHODS 


The  First  Resale 

The  letter  acknowledging  the  new  account  resells  the 
books  and  explains  the  terms  of  payment. 

Dear  Sir: 

We  thank  you  for  the  account  which  you  have  just  opened,  and 
shall  endeavor  at  all  times  to  make  our  business  dealings  most  pleas- 
ing to  you. 

We  hope  that  you  will  give  the  volumes  covered  by  the  en- 
closed invoice  a  very  careful  examination,  as  we  are  confident  that 
there  is  a  wealth  of  information  and  enjoyment  to  be  found  in  their 
pages,  and  that  you  will  never  regret  your  purchase. 

There  are  two  ways  of  paying  for  these  books  as  you  will 
see  by  the  bill,  either  cash  in  one  payment,  for  which  a  liberal  dis- 
count is  allowed,  or  in  regular  monthly  instalments.  If  you  choose 
the  latter  method,  which  is  perfectly  satisfactory  to  us,  you  will  re- 
ceive a  statement  of  your  account  on  the  first  of  each  month. 

If  questions  or  misunderstandings  arise,  and  you  will  address 
the  writer  personally,  he  will  be  only  too  happy  to  place  himself  at 
your  disposal. 

Cordially  yours, 


The  Collection  Man 


The  Appeal  to  Fair  Play 

In  the  personal  letters  issued,  following  the  printed  forms, 
the  collection  man  makes  interesting  use  of  various  appeals. 
The  following  letter,  for  example,  illustrates  the  appeal  to 
fair  play. 

Dear  Sir: 

Have  we  failed  or  have  you? 

We  appeal  to  your  sense  of  fairness  for  the  answer. 

If  you  have  not  received  everything  which  your  order  entitled 
you  to — if  you  have  written  us  your  complaint  and  we  have  failed 
to  adjust  it  to  your  satisfaction — then  we  are  to  blame.  Our  in- 
tentions are  good,  however,  and  if  you  will  state  your  case  right  on 
the  back  of  this  letter,  we  will  promise  satisfaction. 

That  is  fair,  is  it  not? 

You  will  be  fair,  too,  we  know.  If  our  part  of  the  contract  has 
been  fulfilled — ^if  payments  have  not  been  made  merely  because  you 
put  it  off  or  forgot,  then  you  will  make  it  right,  we  are  sure. 


INSTALMENT    COLLECTIONS 


365 


To  bring  your  account  up  to  date  will  require  a  remittance  of 


$ 

Just  return  this  letter  with  your  remittance,  and  we  will  know 
that  you  are  another  American  who  believes  in  a  square  deal. 

Yours  very  truly, 

For  Apparently  Hopeless  Cases 

Another  letter  used  with  apparently  hopeless  cases  is  a 
variation  of  the  "general  manager"  letter  explained  on 
page  216. 

Dear  Sir: 

This  morning  my  assistant  showed  me  a  list  of  all  accounts  on 
books  showing  more  than  two  payments  in  arrears.  "Turn  them 
over  to  our  attorney"  he  said,  "for  those  who  allow  their  accounts 
to  slip  that  far  behind,  do  not  intend  to  pay."  "I  can't  agree  with 
you,"  I  said,  "these  people  are  good,  and  I  am  sure  of  it.  Give  them 
ten  days  and  they  will  prove  it  to  you." 

Was  I  right? 

You  still  owe  us  a  little  balance  of  $ Surely  after  going 

as  far  as  you  have  you  are  not  going  to  flunk  out.  You  are  not  going 
to  compel  us  to  tell  the  judge  about  it  in  order  to  get  our  money.  Of 
course  not.  Mail  a  check  to  us  now  and  show  the  credit  man  that 
he  is  mistaken.     Don't  bother  to  write  a  letter,  just  pin  your  check 

to  this  sheet  and  send  it  Now. 

Yours  very  truly, 

For  Extreme  Cases 

The    following   short   letter    is    said    occasionally   to   be 
effective  in  extreme  cases. 

Dear  Sir: 

Honest  men  pay  their  just  debts. 
Dishonest  men  do  not  pay  their  just  debts. 

You   owe   us   $ 

Which  are  you? 

Yours  very  truly, 

Before  Taking  Legal  Action 

When  a  warning  has  already  been  sent  that  legal  action 
will  be  commenced,  the   following  letter  may  be  employed 


n 


366 


NEW   COLLECTION   METHODS 


INSTALMENT   COLLECTIONS 


367 


I 


\\     V 


with  a  customer  whose  credit  risk  is  apparently  good.  It 
asks  for  a  friendly  man-to-man  understanding  and  appeals  to 
co-operation,  while  at  the  same  time  it  points  out  the  inexor- 
able nature  of  the  action  that  has  been  ordered. 

Dear  Sir: 

If  it  was  possible  for  you  and  me  to  get  together  for  just  a 
few  minutes  I  am  sure  that  we  would  soon  be  able  to  straighten  out 
your  account  with  this  company,  but  as  this  is  a  physical  impossi- 
bility, cannot  it  be  done  by  mail? 

You  will  remember  that  on   you  purchased 

a  set  of   for  which  you  agreed  to  pay  $ as 

follows :   

However,  for  some  reason  unknown  to  us,  your  payments  have 

not  been  kept  up  as  agreed,  and  at  the  present  time  there  is  $ 

past  due. 

Will  you  kindly  use  the  enclosed  envelope,  and  write  me  a 
personal  letter  stating  your  side  of  the  case,  advising  mc  if  possible 
just  how  we  may  expect  you  to  settle  this  account,  and  if  you  can, 
accompany  your  reply  with  at  least  a  dollar  in  order  that  it  may 
be  possible  to  keep  your  name  in  good  standing  on  our  books. 

I  offer  this  chance  to  save  yourself  needless  expense  and  em- 
barrassment which  results  from  legal  action  which  is  ordered  to  begin 
against  you  two  weeks  from  today.    Will  you  grasp  the  opportunity? 

I  shall  be  looking  for  your  letter.  With  kindest  regards  and 
best  wishes,  I  am. 

Very  truly  yours, 

The  FoUow-Up 

If  this  is  not  answered  the  company  follows  it  with  a  letter 
based  on  the  assumption  that  the  customer  is  deliberately 
withholding  payment. 

Dear  Sir: 

Two  weeks  ago  I  wrote  what  I  thought  (and  meant  to  be)  a 
courteous  letter  that  called  for  an  answer  on  your  part.  I  asked 
that  you  tell  me  frankly  what  the  trouble  was  with  your  account, 
for  I  felt  sure  that  it  could  be  easily  adjusted.  You  have  not 
answered  my  letter. 

Apparently  you  are  neither  negligent  nor  careless.  It  appears 
that  you  intend  to  keep  the  books,  and  default  on  the  payments.    Per- 


haps you  will  be  successful.  If  you  think  it  worth  the  effort  you 
might  try,  but  we  caution  you  that  every  effort  will  be  made  by  us 
and  by  our  agents  to  force  payment. 

You  bought  a  set  of    costmg  $ You 

have  paid  $ ,  and  now  owe  us  $ 

Yours  very  truly. 

Ultimatum  No.  1 

Examples  of  final  letters  that  may  be  used  to  offer  the 
customer  a  last  chance  before  action  is  begun  are  the  follow- 
ing: 

Dear  Sir: 

Your  account  being   still   unpaid.   Attorneys    \''":"' 

have  asked  us  for  permission  to  bring  suit  agamst  you.  We  have 
requested  them  to  suspend  action  only  until  you  have  had  one  final 
opportunity  of  remitting  voluntarily  to  us  direct 

We  are  absolutely  at  a  loss  to  understand  your  silence.  It 
is  possible  that  you  have  apparently  some  good  reason  for  not  re- 
mitting for  your  purchase,  but  surely  you  have  no  legitimate  ex- 
cuse for  refusing  us  an  explanation.  ^ 

We  have  tried  to  be  courteous  and  square  in  our  dealings  witn 
you.  but  there  is  a  point  where  courtesy  ceases  to  be  a  virtue 

Unless  we  hear  from  you  by  return  mail  we  shall  allow  the  col- 
lection agency  to  take  whatever  steps  may  be  necessary  to  effect 

settlement. 

Yours  very  truly, 

Ultimatum  No.  2 

This  letter  is  the  last  chance,  after  which  the  law  takes 
its  course. 

Dear  Sir: 

We  are  this  day  wiring  our  corresponding  attorney  m  your 
city  to  proceed  with  action  against  you  on  our  claim  amounting 
,     <t 

We  have  written  repeatedly,  giving  you  many  extensions,  but 
clients  won't  wait  any  longer.  You  have  a  day  left  within  which 
to  make  settlement.  Send  check  and  wire  or  write  us  that  you  are 
doing  so  immediately.    This  is  final.    Govern  yourself  accordingly. 

Yours  very  truly, 


i 


I 


INSTALMENT   COLLECTIONS 


369 


'^i 


CHAPTER  XXXIV 

INSTALMENT  COLLECTIONS- 
SPECIAL  PUBLICATIONS 

The  Hardest  Form  of  Collection  Problem 

If  you  wanted  advice  about  strategy  and  tactics,  would 
you  go  to  a  veteran  of  the  Spanish- American  War,  or  to 
Joffre,  Haig,  or  Foch?  As  Roosevelt  has  recently  said,  the 
war  of  '98  was  "all  the  war  there  was,"  but  the  methods  our 
boys  are  learning  today  make  the  methods  of  that  time  "as 
out-of-date  as  those  of  Caesar's  Tenth  Legion."  In  the  same 
fashion,  credit  and  collection  men  have  learned  to  value  the 
hard-won  lessons  of  experience  gained  by  companies  which 
confront  collection  problems  of  more  than  common  difficulty. 

According  to  their  own  testimony,  the  publishers  who  sell 
expensive  sets  of  books  on  the  instalment  plan  have  the  hardest 
form  of  collection  problem.  Especially  is  this  true  if  the 
article,  to  be  successfully  marketed,  must  be  made  to  appeal, 
to  a  large  section  of  the  general  public  which  ordinarily  would 
not  purchase  books  in  such  quantity  at  one  time.  The  problem 
is  almost  entirely  a  credit  problem,  for  no  article,  say  the 
publishers,  is  so  easy  to  collect  for  as  a  book  that  has  fallen 
into  the  hands  of  a  person  who  has  even  begun  to  use  it. 
Still,  the  difficulty  of  determining  who  are  good  credit  risks 
creates  a  hazard  which,  let  the  credit  man  do  what  he  may, 
falls  on  the  back  of  the  collection  man. 

An  Unusual  Credit  Risk 

The  credit  risk  undertaken  by  one  publisher  selling  at: 
expensive  set  of   reference  books  has  been  most  unusual. 

368 


On  the  one  hand  this  corporation  deals  in  an  article  of  unique 
reputation  in  which  the  public  has  confidence.  On  the  other 
hand  it  deals  in  an  article,  which  unfortunately  for  the  good 
sense  of  mankind  is  well  known  to  present  the  toughest  pos- 
sible problem  to  the  collector.  To  be  successfully  marketed, 
moreover,  this  set  of  books  must  be  made  to  appeal  to  a  great 
section  of  the  general  public  which  would  not  dream  of  buy- 
ing any  other  set  one-half  or  perhaps  even  one-fourth  as  ex- 
pensive. The  books  are,  moreover,  books  of  reference,  which 
demand  work  if  a  man  is  to  enjoy  them.  On  the  whole  it  is 
hard  to  imagine  a  collection  problem  having  more  elements  of 
interest,  especially  when  one  remembers  that  the  series  of 
payments  may  extend  over  a  period  of  years  before  final  settle- 
ment has  been  made. 

The  Sales  Campaign 

Whether  the  sale  of  a  set  of  this  character  is  undertaken 
by  a  salesman  alone,  or  by  salesmen  and  bookstores,  or  by 
these  mediums  with  the  additional  assistance  of  an  advertising 
campaign,  the  solicitation  must  be  vigorous  and  persistent, 
and  must  leave  no  appeal  untouched  that  is  likely  to  secure 
interest  in  the  books  and  final  purchase. 

In  such  a  selling  campaign  advertisements  and  salesmen 
should  be  careful  not  to  oversell  to  the  point  of  weakening  the 
sense  of  credit  responsibility  in  the  customer.  The  salesman 
should  be  carefully  trained  to  estimate  the  credit  risk.  If 
this  is  not  done,  if  the  salesman  is  allowed  to  let  his  eagerness 
to  earn  commissions  override  the  carefully  determined  rules 
against  taking  irresponsible  credits — ^no  subsequent  collection 
eflForts  will  avail.  The  collection  department  must  have  a  fairly 
sound  basis  to  use  as  a  fulcrum  for  its  efforts.  If  this  credit 
fulcrum  does  not  exist  the  collection  eflFort  will  be  a  disastrous 
failure.  Resale  of  the  goods,  of  the  credit  responsibility,  and 
the  method  of  payment  must  be  carried  on  well  into  the  col- 


370 


NEW   COLLECTION   METHODS 


INSTALMENT   COLLECTIONS 


371 


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NEW   COLLECTION   METHODS 


lection  period,  as  well  as  receiving  thorough  emphasis  before 
the  books  are  shipped. 

In  this  collection  campaign  the  principle  of  surprise  and 
impulse  dominates  throughout,  in  that  the  procedure  is  so 
flexible  that  a  delinquent  customer  can  never  be  sure  what 
step  will  be  taken  next.  Skilful  use  is  made  of  appeals  to 
emotion  and  instinct  as  well  as  to  the  formation  of  habit.  The 
appearance  of  the  letters  is  studied  in  order  to  produce  high 
attention  value.  Every  letter  issued  is  carefully  adjusted  to 
the  prescribed  condition  it  must  meet.  So  far  as  possible,  the 
situations  which  occur  with  comparative  frequency  in  the  ex- 
perience of  the  collection  department  are  reduced  to  a  routine 
and  taken  care  of  with  the  minimum  of  attention,  although 
the  whole  process  is  constantly  supervised  and  judgment  is 
exercised  as  to  the  steps  to  be  taken  in  any  particular  case. 

A  special  school  conducted  by  the  credit  manager  teaches 
the  salesman  what  classes  of  customers  are  likely  to  keep  up 
an  interest  in  the  books  sufficient  to  carry  them  through  the 
period  of  payment.     He  is  trained  to  judge  by  the  location 
of  a  home  and  its  furnishings,  as  well  as  by  the  character- 
istics of  the  prospective  customer.     In  making  the  sales  he 
receives  the  initial  payment  and  carefully  explains  the  credit 
risk  and  the  methods  of  payment     In  large  cities  the  sales- 
man is  followed  by  a  verifier  whose  special  task  is  to  check 
up  the  salesman's  judgment  as  to  credit  reliability.     His  re- 
port is  made  on  the  basis  of  a  call  at  the  subscriber's  residence 
and  at  his  place  of  business.     In  some  cities  also  a  "down- 
town man"  calls  at  the  customer's  place  of  business  and  secures 
information.     This  report  is  signed  by  the  person  who  made 
it  and  countersigned  by  the  collection  department  and  credit 
department.     In  localities  where  no  verifier  is  employed,  in- 
quiry forms    may  be  sent  to  the  town  clerk,  to  a  bank,  to  a 
prominent  merchant,  to  the  subscriber's  employer  or  other 
reference,  or  to  the  subscriber  direct.     The  assembled  infor- 


INSTALMENT   COLLECTIONS 


Verifier's  Report 


373 


Date. 


Name    . . . 
Residence 
Business   . 


Phone    No Listed . 

Phone   No Listed, 


Residence  Report  Business  Report 

I  called  at I  called  at 

Neighborhood   Building   

House   Neighborhood 

Employer   or   employed, 

I    interviewed Name   of    firm 

Rent 

Married  or  single 

Age   

Has  lived  there 

Lived   previously 

Credit    standing 

Bank  


Business   

Large  or  small 

Rating  

How  long  here . . . . 

Rent 

Where   previously. 


I    interviewed , 


From  information  received  at 

this  address  I  believe  order Sub-employed    

because  How  long 

Salary 

Where  previously 

Permanent   or   temporary.... 


Signed 


From  information  received  at 
this  address,  I  believe  order. . 
because   


Signed 


Collection  Department  Statement 

I  believe  we collect  this  account  because 

Signed    


We 


Credit  Department  Statement 
accept  this  order  because 


Signed 


374 


NEW  COLLECTION   METHODS 


I 


mation  is  submitted  to  the  credit  man  who  either  accepts  it 
and  fills  out  a  ledger  card  (see  page  324)  or  decides  not  to 
accept  it  and  writes  a  diplomatic  letter  returning  the  cus- 
tomer's first  payment. 

The  next  step  is  to  acknowledge  the  order  and  to  send 
the  bill  of  lading.  This  is  done  in  two  successive  letters 
which  use  the  opportunity  to  resell  in  slightly  varied  form  the 
books  themselves  and  outline  the  method  of  payment. 

The  acknowledgment  letter: 

Dear  Subscriber: 

We  are  glad  to  acknowledge  receipt  of  your  recent  order.  It 
will  have  our  prompt  attention  and  shipment  will  be  made  as  soon 
as  possible. 

The  books  you  have  purchased  are  among  the  most  valuable  works 
in  the  English  language.  Their  possession  cannot  help  but  be  a  source 
of  much  pleasure  and  benefit  to  every  owner.  And  we  congratulate 
you  on  your  good  judgment  in  placing  this  order. 

Enclosed  with  this  letter  we  are  sending  you  your  Record  Card. 
Please  read  it  carefully.    We  want  to  emphasize  the  following  points : 


1.  Please  send  payments  regularly  and  in  time 
to  reach  us  on  the  date  they  fall  due. 

2.  Preserve  your  Record  Card  and  enter  on  it 
every  payment  you  make,  so  that  you  will  know  at 
all  times  exactly  how  your  account  stands. 

3.  Advise  us  promptly  of  any  change  in  address. 


Thanking  you  for  the  order,  we  are, 

Yours  very  truly. 

Together  with  the  above  letter  goes  a  record  card  which 
by  underlined  and  capitalized  statements  shows  an  equally 
anxious  desire  that  the  customer  shall  understand  with  the 
utmost  possible  clearness  just  what  his  responsibilities  in  the 
matter  of  payment  are.  This  publishing  house,  like  many 
other  houses  selling  on  the  instalment  plan  to  a  high  grade 
of  purchasers,  has  found  that  it  costs  less  for  the  cus- 
tomer to  remind  himself  of  his  monthly  payment  than  to  send 


INSTALMENT   COLLECTIONS 


375 


him  a  statement.  Many  customers  even  find  it  an  annoyance 
to  receive  monthly  statements.  Probably  the  record  card 
system  causes  mgre  unintentional  delinquency,  but  it  is  far 
easier  to  send  a  courteous  reminder  now  and  then  to  a  for- 
getful customer  than  to  send  out  numerous  statements  monthly. 

General  Plan  of  Collections 

When  an  instalment  fails  to  put  In  an  appearance  at  the 
due  date,  the  collection  procedure  begins  and  letters  are  sent 
at  weekly  intervals.  The  first  two  use  courteous  though 
urgent  language,  while  the  fourth,  when  a  month  has  passed 
without  a  reply,  makes  it  clear  that  unpleasant  consequences 
will  follow  unless  the  payment  is  received.  Thereafter  the 
account  goes  through  the  hands  of  a  special  adjuster  who 
first  warns  of  a  draft,  then  draws,  notifying  the  customer  and 
urging  payment,  and  then,  if  the  draft  is  refused,  threatens  suit. 

At  this  stage  three  courses  lie  open  to  the  collection 
manager.  He  may  send  the  claim  direct  to  an  attorney  in  the 
subscriber's  locality,  but  he  is  more  likely  to  try  the  effect  of 
a  strong  letter  from  a  collection  agency  operated  by  his  own 
department  accompanied  by  an  agency  draft  and  letter  to 
the  subscriber's  local  bank.  A  third  course  is  to  send  a  letter 
from  the  general  manager  which  courteously  expresses  the 
opinion  that  there  has  been  a  mistake  and  offers  to  keep  the 
account  out  of  the  attorney's  hands  until  the  subscriber  has 
had  a  chance  to  explain  to  him  personally. 

If  the  credit  has  been  considered  reasonably  good  and  the 
account  looks  collectible,  the  manager  is  likely  to  send  the 
"general  manager"  letter,  the  "private  agency"  letter,  and 
then  to  turn  the  claim  over  to  the  attorney.  But  if  the  credit 
looks  weak,  he  is  likely  to  follow  the  agency  letter  with  corre- 
spondence directed  towards  securing  the  return  of  the  goods, 
in  which  case,  of  course,  the  subscriber  loses  the  payments 
already  made.    Naturally  the  company  prefers  to  adopt  other 


t 


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Jl 


I  ! 


376  NEW   COLLECTION   METPIODS 

methods  before  taking  this  last  resort,  but  it  "pulls  the  books" 
unhesitatingly  if  this  seems  the  best  course. 

If  the  credit  looks  weak,  the  manager  may  decide  after 
the  second  letter  that  it  is  a  mistake  to  use  further  leniency 
and  may  send  a  letter  threatening  to  draw,  followed  by  draft, 
if  the  reply  is  not  received  in  a  week.  In  the  same  way  special 
adjuster  letters,  draft  correspondence,  and  attorney  corre- 
spondence may  be  "switched  on"  when  desired. 

The  "Good  Customer"  Series 

After  a  subscriber  has  made  four  or  more  payments  it  is 
fair  to  assume  that  he  has  formed  the  habit  and,  what  is  of 
vastly  more  importance,  that  he  is  using  and  reading  the 
books.  The  company  is  thoroughly  justified  in  assuming  in 
this  case  that  he  is  convinced  of  their  value  to  him  and  that 
he  would  not  part  with  them  for  many  times  the  money. 
Accordingly  the  first  reminder  to  a  subscriber  in  this  situation 
is  a  courteous  suggestion  that  his  payment  has  been  made  but 
for  some  reason  cannot  be  located.  A  form  at  the  bottom  of 
the  letter  makes  the  reply  easy. 

The  first  letter — a  courteous  suggestion: 

Dear  Subscriber: 

Your  regular  monthly  payment  has  not  been  credited  to  you. 

To  help  us  locate  the  payment,  will  you  kindly  give  the  infor- 
mation requested  below  and  mail  the  slip  to  us  at  once? 

Please  give  this  your  prompt  attention,  .is  we  are  anxious  to  have 
your  account  shown  on  our  books  as  up  to  date. 

Yours  very  truly, 

Date  you  sent  payment    

Amount   of   payment  $ 

Form  of  payment  (check  or  money  order)   

Name  and  Address  from  which  payment  was  sent 

Is   this   the   same  address   from   which   the   previous   payment   was 
received  ?   


INSTALMENT   COLLECTIONS 


377 


The  second  letter  is  still  courteous  though  it  expresses 
surprise  and  "resells"  the  value  to  the  subscriber  of  the  "use- 
while-you-pay"  plan. 

Dear  Subscriber: 

We  wrote  you  some  days  ago  about  your  account.  It  has  been 
going  along  so  smoothly  that  we  were  surprised  to  find  that  your 
monthly  payment  hadn't  reached  us. 

You  haven't  replied  to  our  letter,  nor  has  the  payment  been 
received. 

Please  remember  that  our  "Use-While- You-Pay"  Plan  is  very 
convenient  and  easy  to  follow,  provided  you  keep  your  account  up 
to  date  and  make  each  monthly  payment  as  it  comes  due. 

Surely  you  realize  this  and  do  not  want  your  account  to  get  in 
arrears.  If  your  payments  get  behind,  it  is  hard  to  make  up  the  back 
payments. 

Your  account  is  only  a  little  overdue.  Now — while  it  is  easy — get 
it  up  to  date  by  sending  us  a  payment.     Use  the  slip  below. 

We  shall  expect  your  remittance  by  return  mail. 

Yours  very  truly. 


I  enclose  $ to  cover  the  payment  overdue. 

Name    

Local    

Town State 


The  third  letter  begins  with  the  pointed  inquiry,  "Are  you 
receiving  your  mail?"  which  holds  up  before  the  customer  his 
failure  to  reply.  It  states  plainly  that  the  company's  income 
is  received  from  just  such  payments  as  these,  and  implies  that 
spurred  on  by  plain  necessity,  it  is  determined  to  secure  its 
just  dues.  There  is  no  hint  of  weakness  or  "poor  mouth"  in 
this  statement  but  rather  a  frank  explanation  of  the  grounds 
of  their  persistency,  which  coupled  with  the  company's  well- 
known  prestige  and  strength,  is  calculated  to  make  a  careless 
debtor  send  in  his  check  at  once  lest  a  worse  fate  befall  him. 
At  this  point,  as  has  been  stated,  a  letter  warning  of  a  draft 
may  be  sent.    Otherwise  the  fourth  letter  tells  the  subscriber 


% 

i 


378 


NEW   COLLECTION   METHODS 


\ii 


frankly  that  the  company's  patience  is  exhausted  and  asks 
him  to  show  his  appreciation  of  their  courteous  treatment  by 
an  immediate  response.  If  he  does  not — and  here  is  the  phrase 
that  stings — they  will  be  obliged  to  adopt  "unpleasant 
methods." 

The  fourth  letter — a  suggestion  of  "unpleasant  methods": 

Dear  Subscriber: 

This  is  our  Fourth  letter  regarding  your  failure  to  make  your 
monthly  payment. 

Considering  that  one  payment  is  nearly  a  month  overdue  and 
another  is  about  due — and  that  you  haven't  even  paid  us  the  courtesy 
of  a  reply  to  any  of  our  letters — don't  you  agree  that  we  are  very 
patient  with  you? 

We  think  we  are,  but  frankly,  our  patience  is  about  exhausted. 

We  want  a  payment  on  your  account — and  we  want  it  Now. 

Show  that  you  appreciate  courteous  treatment  by  an  immediate 
response  to  this  letter.  For  if  you  do  not  send  a  payment  At  Once, 
you  will  compel  us  to  adopt  unpleasant  methods  to  collect  the  money 
due  us. 

Please  help  us  to  avoid  any  trouble  on  your  account.  Send 
a  payment  Now — using  the  slip  below. 

Yours  very  truly. 


I  enclose  $ to  cover  the  payment  overdue. 

Name    

Local    


Town State 

If  possible,  include  the  payment  that  will  be  due  next  week — 
that  will  put  your  account  in  the  up-to-date  class. 

The  "Poor  Customer"  Series 

But  suppose  the  subscriber  after  making  his  initial  pay- 
ment and  receiving  the  books  fails  to  send  the  next  payment. 
This  situation  has  a  doubtful  complexion  which  the  company 
hastens  to  recognize  by  a  longer  and  more  urgent  letter  than 
the  first  one  of  the  series  just  described.  This  letter  takes  no 
chances  on  assuming  that  the  payment  has  been  sent,  but 


INSTALMENT   COLLECTIONS 


379 


assumes  instead  an  oversight  and  "resells"  the  importance  of 
keeping  close  track  of  the  record  cards. 
The  first  letter: 

Dear  Subscriber: 

Your  payment  was  due  nearly  a  week  ago — ^but  it  has  Not  been 
received. 

No  doubt  this  is  an  oversight  on  your  part  If  you  sent  a  pay- 
ment, and  you  know  it  must  have  crossed  this  letter  in  the  mails, 
just  destroy  this  letter.  If  you  have  Not  sent  a  payment,  please 
fill  in  a  slip  at  the  end  of  this  letter  and  enclose  it  to  us  with  your 
payment. 

When  we  acknowledged  your  order  we  sent  you  a  Record  Card 
showing  the  date  your  payment  is  due  each  month.  If  you  have 
mislaid  this  Record  Card  we  will  send  you  another  on  request,  so 
that  you  will  have  a  reminder  for  your  Next  payment. 

This  is  important,  as  we  do  not  send  notices  for  each  payment. 

Earnestly  requesting  your  co-operation  in  this  matter  of  prompt 
monthly  payments,  we  are, 

Yours  very  truly, 

I  enclose  $ to  cover  the  payment  now  overdue. 

Name    

Local    

Town State 


The  second  letter,  after  pointing  out  that  no  reply  has 
been  received  "resells"  the  credit  plan  in  the  sentence,  "You 
accepted  credit  from  us  in  order  that  you  might  benefit  by  our 
'use-while-you-pay'  plan,  and  we  want  to  see  you  get  started 
right  in  your  monthly  payments."  It  reminds  him  of  the 
emphasis  laid  in  the  bill-of-lading  letter  upon  the  formation 
of  right  habits  and  urges  him  not  to  get  in  the  class  of  sub- 
scribers who  run  behind  in  their  payments.  The  third  letter, 
like  the  third  letter  in  the  other  series,  points  out  that  they 
"need  the  money"  and  are  determined  to  get  it.  It  urges  the 
importance  of  starting  in  right,  rather  ominously  suggests 
that  the  subscriber  is  stirring  up  trouble  for  himself,  and  con- 
cludes by  urging  that  he  save  himself  the  annoyance  and  them 


» »- 

,1 


!>  ■ 


38o 


NEV/   COLLECTION    METHODS 


the  expense  of  these  urgent  letters  by  restoring  pleasant  rela- 
tions with  the  payment.  Instead  of  sending  this  third  letter, 
the  manager  may  decide  to  begin  draft  correspondence,  as  in 
the  other  series,  though  in  a  more  urgent  tone. 

The  third  letter  is  a  stinging  letter.  The  first  sentence  is 
like  a  slap  in  the  face,  though  even  here  the  company  shows 
that  it  is  the  subscriber's  action  which  forces  them  to  this  un- 
pleasant assumption.  A  remarkable  device  is  the  last  para- 
graph, the  effect  of  which  the  reader  may  test  for  himself. 
Incidentally,  this  stinging  language  would  be  vastly  less 
effective  without  the  softening  of  tone  in  the  next  to  the  last 
paragraph. 

Dear  Subscriber: 

Do  you  want  us  to  think  you  accepted  your  purchase  from  us, 
but  never  really  intended  to  pay  for  it? 

We  have  written  you  three  times  regarding  your  failure  to  make 
your  monthly  payment,  but  you  don't  even  extend  us  the  courtesy 
of  a  reply. 

One  payment  is  nearly  a  month  overdue,  and  a  Second  will  be 
due  in  several  days.     This  condition  cannot  continue. 

We  must  have  a  payment,  and  we  want  it  Now.  We  cannot  afford 
to  keep  writing  you  letters  about  your  account.  You  know  it  is  over- 
due, and  you  know  it  must  be  paid,  so  send  us  the  money  at  once. 
Use  the  slip  on  the  end  of  this  letter. 

Our  relations  began  so  pleasantly  that  we  regret  having  to 
write  you  in  this  manner.  But  we  must  make  it  clear  to  you  that  your 
future  payments  must  he  made  when  due,  and  the  payment  you 
owe  Must  Be  Paid  Now. 

We  sincerely  hope  that  you  will  not  ignore  this  letter.  Read  the 
first  paragraph  again. 

Yours  very  truly. 


I  enclose  $ to  cover  the  payment  now  overdue. 

Name    

Local    


Town State  

If  possible,  include  the  payment  that  will  be  due  next  week- 
that  will  put  your  account  in  the  up-to-date  class. 


INSTALMENT   COLLECTIONS 


381 


The  fifth  letter  is  the  special  adjuster's  appeal.  Not  until 
the  fifth  letter,  in  case  the  credit  appears  strong,  does  the 
special  adjuster  make  his  appearance,  warning  that  he  will 
draw  if  a  reply  does  not  appear  and  appealing  to  the  sense  of 
fair  play  in  the  paragraph:  "There  are  just  two  ways  to 
collect  debts  if  people  don't  seem  willing  to  pay.  One  is  to 
appeal  to  a  man's  reason  and  sense  of  fairness;  the  other  is 
to  force  him  to  pay.  We  much  prefer  the  former  method. 
Don't  you?" 

The  sixth  letter  accompanies  the  draft.  This  company 
does  not  believe  in  sending  out  drafts  to  fight  their  own  way. 
It  realizes  that  the  effect  of  drafts  is  largely  mental  and  re- 
enforces  this  effect  by  sending  at  the  same  time  that  the  draft 
goes  to  the  subscriber's  local  bank  the  following  powerful 
letter  from  the  special  adjuster  with  its  reiterated  command, 
"Pay  this  draft,"  and  the  frank  statement  that  suit  will  cer- 
tainly be  undertaken,  if  the  draft  is  not  accepted.  A  strong 
appeal  to  the  sense  of  fair  play  occupies  the  center  of  the 
letter,  asserting  the  writer's  belief  that  999  people  out  of 
1,000  are  fair  and  square.  The  basis  for  successful  suit  also 
is  plainly  shown.  The  last  part  of  the  letter  appeals  to  the 
money-saving  instinct.  It  is  to  be  noted  that  the  third  and 
fourth  paragraphs  in  this  letter  contain  harsh  language  that 
would  raise  a  welt  on  even  a  tough  epidermis — if  it  were 
addressed  to  the  reader.  But  the  writer  implies  in  the 
fourth  paragraph,  "I  wouldn't  say  these  things  about  you 
even  if  they  were  true." 

Dear  Subscriber: 

You  haven't  sent  that  payment  requested  in  my  recent  letter 
so  I  have  today  drawn  a  draft  on  you  through  your  local  bank. 

Pay  this  draft.    It  is  for  the  two  payments  overdue. 

Some  men  believe  in  writing  collection  letters  that  are  insulting 
and  accuse  a  man  of  dishonesty  and  falsehood  and  meanness — I 
don't. 

I  know  that  at  heart  999  people  out  of  every  thousand  are  fair 


I 


/  ■>: 


I)-  Ji 


382 


NEW   COLLECTION    METHODS 


and  square.  I  feel  that  your  previous  failure  to  live  up  to  your 
agreement  is  not  due  to  any  plan  or  intent  on  your  part  to  get  out 
of  paying  a  debt  that  you  contracted. 

You  have  received. a  number  of  letters  from  us — all  of  them 
courteous  and  giving  facts — and  unless  you  pay  this  draft  there  is 
nothing  left  for  us  to  do  but  give  this  account  to  our  attorney  in 
your  town,  for  suit. 

In  our  various  letters  we  have  said  all  that  can  be  said  about 
your  account.  Frankly  we  don't  want  to  sue  you,  but  just  as  frankly, 
zve  will,  unless  you  make  your  monthly  payments. 

You  understand  that  if  the  account  goes  to  suit,  it  is  for  the 
entire  amount  plus  court  costs  and  attorney's  fees.  Surely  you  would 
rather  settle  account  in  the  easy  monthly  payment  way. 

So  pay  this  draft. 

Then  write  me  that  you  will  make  a  fresh  start  and  keep  your 
payments  Up  To  Date. 

Yours  very  truly. 


Special  Adjuster 


The  seventh  letter  is  written  if  the  draft  is  returned  un- 
paid, the  special  adjuster  adding,  "Does  this  mean  that  you 
are  going  to  force  us  to  sue  you."  And  he  tells  the  subscriber, 
"We  know  the  law.  We  know  we  are  fully  protected.  And 
that  if  this  matter  goes  to  court  we  will  secure  a  judgment 
against  you.  Then  you  will  have  to  pay  the  amount  due  us 
plus  the  cost  and  attorney's  fee."  Assuming  that  the  sub- 
scriber may  not  realize  this,  he  says  he  will  hold  the  account 
on  his  desk  for  a  little  longer. 

The  eighth  letter  is  the  general  manager's  letter,  which 
may  be  used  at  this  point.  It  is  a  fine  example  of  the  use  of 
appeal  to  good-will,  especially  in  its  request,  "Help  me  to  keep 
our  relations  friendly"  and  in  its  suggestion  that  the  reply 
be  sent  to  him  personally. 

Dear  Subscriber: 

This  morning  your  account  was  brought  to  me  with  the  request 
that  I  approve  the  placing  oi  it  in  the  hands  of  our  Attorney  for 
collection. 


INSTALMENT   COLLECTIONS 


383 


There  iis  one  big  reason  why  I  don't  want  to  do  that.  If  we 
sue  you,  we  will  get  our  money — hut  we  take  great  satisfaction  in  the 
friendly  relationship  which  exists  between  ourselves  and  our  sub- 
scribers, and  law  suits  always  destroy  such  relationship. 

I  wish  to  keep  your  friendship,  and  I  am  confident  you  wish  to 
keep  ours,  so  I  instructed  our  Collection  Department  to  delay  until 
I  had  a  chance  to  write  to  you  personally. 

Help  me  to  keep  our  relations  friendly,  and  to  avoid  the  annoy- 
ance, friction,  and  expense  of  a  lawsuit.  There  must  be  some 
reason  why  you  haven't  answered  our  various  requests  for  payment. 
Please  send  a  letter  of  explanation — including  a  payment,  if  possible — 
by  return  mail. 

Don't  disappoint  me,  because  if  you  do  I  shall  be  unable  to 
delay  this  matter  further. 

Use  the  enclosed  special  addressed  envelope  and  your  reply  will 
come  direct  to  my  office. 

Yours  very  truly, 


General  Manager 


As  will  be  seen  by  a  reference  to  the  diagram  on  pages 
370,  371,  the  same  procedure  is  used  in  each  of  the  foregoing 
series  following  the  fourth  letter,  the  primary  difference  being 
that  the  initial  assumptions  are  more  favorable  to  the  customer 
who  has  made  several  payments  than  to  the  customer  who 
has  made  only  the  first. 

"Extension,"  "Cancellation,"  and  "Misunderstanding"  Series 

The  company  has  also  determined  its  typical  procedure  in 
several  other  cases.  In  one  of  these  a  subscriber  who  has 
asked  for  more  time  in  which  to  make  his  payment  is  allowed 
the  extension,  but  in  case  he  breaks  his  promise  is  followed  up 
by  three  or  four  letters,  the  third  of  which  gives  warning  of 
a  draft,  while  the  fourth  urges  forcibly  that  the  draft  be  paid. 
Similar  tactics  are  used  with  the  subscriber  who  tries  to  beg  off 
from  his  contract  and  asks  to  be  allowed  to  return  the  books. 
After  its  first  letter  refusing  this  privilege,  the  company,  in 
the  fourth  letter,  reaches  the  stage  of  a  draft  sent  by  the 


i 


if 


r 


384 


NEW   COLLECTION   METHODS 


Special  adjuster,  followed  by  the  letter  threatening  suit  when 
the  draft  has  been  refused.  If  a  customer  misunderstands  his 
account  and  claims  to  have  paid  more  than  the  company's 
records  indicate,  a  letter  of  careful  explanation  is  sent  to  him. 
If  he  makes  no  reply,  one  letter  is  sent  to  him  and  he  is  drawn 
on  without  warning. 

"Arrears"  and  "Delinquent  Account"  Series 

Practically  the  same  method  of  attack  is  followed  when 
the  subscriber,  after  repeated  letters,  has  made  a  payment 
which  fails  to  cover  his  arrears.  If  a  "weak  credit"  subscriber 
becomes  delinquent  a  second  time,  the  special  adjuster  may 
be  called  into  play  with  a  letter  insisting  that  the  delinquent 
pay  now,  which  is  followed  by  the  urgent  letter,  "Pay  this 
draft." 

General  Character  of  Procedure 

Nearly  all  the  letters  in  the  foregoing  collection  proce- 
dure are  decidedly  urgent  and  follow  up  their  attack  with 
a  swiftness  and  vigor  exceeding  that  which  most  companies 
in  a  different    situation   would  be  willing  to  use.      Several 
factors  explain  this  situation.     The  company  sells  a  "once- 
in-a-lifetime"  article,  and  while  it  handles  other  books,  it  has 
very  little  interest  in  attempting  a  repeat  sale  to  a  subscriber 
whose  habits  of  payment  are  shaky.     Consequently  after  a 
man  has  successfully  resisted  the  first  courteous  letters  of  the 
series,  only  one  serious  attempt — the  general  manager's  letter 
— is  made  to  retain  his  good-will.    Moreover,  after  the  careful 
credit  examination  and  the  "selling  of  credit"  with  which  the 
customer's   relations   began,   as   well   as   the  unusual    "easy 
action"  devices  accompanying  each  letter,  most  subscribers 
who  have  reached  this  stage  classify  themselves  as  poor  pay, 
and  have  no  cause  to  take  offense  at  urgent  letters. 


CHAPTER  XXXV 

THE  BASIS  OF  RETAIL  CREDITS  AND 

COLLECTIONS 

The  Service  Given  by  the  Retail  Store 

The  basis  of  the  retailer's  position  in  the  community  is 
service,  an  important  part  of  which  is  his  charge  account  ser- 
vice. In  collections  as  well  as  in  sales  and  advertising,  it  is 
his  business  to  sell  the  service  of  his  store,  and  not  merely 
the  goods  he  handles. 

The  foregoing  statements  are  the  basis  of  all  retail  col- 
lection. 

The  strength  of  the  retail  store  is  its  service.  The  stock 
of  goods  has  been  collected  with  a  thorough  understanding  of 
local  needs.  The  location  is  convenient  where  men  and 
women  can  drop  in  as  they  are  passing  by  or  can  telephone 
their  orders  and  have  them  delivered.  The  proprietor  and 
his  clerks  have  the  opportunity  of  knowing  all  their  customers 
personally  and  of  catering  year  after  year  to  their  individual 
needs.  Many  a  man  would  not  think  of  buying  a  necktie 
except  from  the  selection  he  can  find  in  the  stock  of  his  own 
haberdasher. 

It  is  the  business  of  the  retail  merchant  to  make  friends 
for  his  store,  not  on  the  basis  of  price  alone,  but  through  good 
values,  prompt  and  courteous  attention,  and  a  complete  and 
well-selected  stock.  Its  success  will  be  based  not  on  these 
factors  alone  but  also  on  its  sound  financing,  accurate  account- 
keeping,  careful  study  to  determine  what  lines  and  what  activi- 
ties are  really  profitable,  and  vigorous  endeavors  by  means 
of  the  right  kind  of  advertising  to  enlarge  or  at  least  to  main- 
tain the  store's  volume  of  business.    It  is  necessary  to  avoid 

385 


"i  '^ 


386 


NEW   COLLECTION    METHODS 


I. 


' 


overbuying,  to  make  rapid  turnover,  and  keep  down  expenses, 
and  last  but  not  least,  to  maintain  prompt,  energetic,  and  in- 
telligent collection.  Every  item  of  a  store's  efficiency  is  of 
value  to  its  customers,  since  only  by  these  means  can  it  main- 
tain a  high  grade  of  service.  Every  one  of  the  foregoing  items 
has  its  place  in  advertising  and  sales.  They  can,  likewise, 
be  used  again  and  again  in  collections. 

Teaching  Customers  to  Appreciate  Retail  Service 

The  principle  of  resale  is  nearly  as  important  to  the  retail 
merchant  as  it  is  to  the  jobber  or  manufacturer.  On  the  one 
hand  he  is  dealing  v^ith  customers  who  have  little  or  no  knowl- 
edge of  business  principles,  who  do  not  realize  the  nature  of 
the  service  they  are  receiving  and  who  consequently  are  likely 
to  treat  their  obligations  carelessly,  unless  these  are  explained 
to  them ;  on  the  other  hand,  his  customers'  very  unfamiliarity 
with  business  methods  increases  the  retail  merchant's  difficulty 
and  even  embarrassment  in  talking  about  them. 

Under  present  conditions,  however,  some  rudiments  of 
the  knowledge  of  the  retail  business  are  being  forced  upon  the 
attention  of  even  the  most  careless  retail  purchaser.  The 
suggestions  of  the  Commercial  Economy  Board  relative  to 
the  carrying  of  small  parcels,  and  urging  customers  not  to 
abuse  the  return-goods  privilege  have  been  spread  abroad 
through  department  store  advertising  and  magazine  articles. 
There  has  been  much  discussion  and  some  actual  trial  of  the 
cash-and-carry  plan. 

As  a  result  of  these  few  circumstances  it  is  gradually  being 
forced  into  the  consciousness  of  the  retail  buyer  that  the 
service  of  local  merchants  in  providing  convenient  stocks  of 
goods,  maintaining  free  delivery,  and  carrying  charge  ac- 
counts, has  a  value  in  dollars  and  cents ;  that  it  is  very  annoy- 
ing to  be  deprived  of  any  portion  of  that  service;  and  that 
reasonable  care  on  their  part  will  increase  the  merchant's 


RETAIL   CREDITS 


387 


ability  to  continue  this  service  at  high  efficiency  or  even  to 
avoid  abolishing  it. 

Selling  Credit 

In  retail  credits  and  collections,  therefore,  there  is  a 
splendid  opportunity  for  a  resale  of  the  service  of  the  store, 
showing  customers  that  it  is  to  their  advantage  to  help  main- 
tain it  by  prompt  payment.  Moreover,  when  securing  new 
customers,  the  retailer  like  the  jobber,  needs  to  "sell  credit." 

The  resale  attitude  is  even  easier  for  the  retailer  to  adopt 
than  for  the  jobber  or  manufacturer,  for  the  retail  proprietor 
or  manager  is  usually,  head  salesman  and  head  credit  man 
rolled  into  one  and  finds  it  easy  to  talk  about  his  store  service. 
The  bug-bear  of  the  retailer  in  collection,  moreover,  is  the 
fear  of  offending  his  customers  and  driving  away  trade,  and 
the  only  collection  method  he  knows  is  some  variation  of  the 
appeal  to  fear.  The  result  is  that  he  doesn't  collect,  because 
he  knows  well  enough  that  his  business  is  to  make  friends. 
But  when  he  has  grasped  the  possibilities  of  resale,  he  has 
found  the  way  to  collect  the  money  due  him  without  giving 
offense. 

The  Retailer  Does  a  Credit  Business  at  a  Cash  Price 

*Tf  you  walk  into  the  average  retail  store,"  said  a  well- 
known  business  man,  "and  ask  them  if  they  do  a  credit  busi- 
ness, some  of  them  will  say,  'Yes,  of  course  we  do.'  Others 
will  say,  'No,  but  we  carry  charge  accounts  for  some  of  our 
best  customers  as  an  accommodation.'  But  even  the  second 
speaker  may  be  carrying  his  customers  60  or  90  days  or  even 
more,  so  that  he  is  really  doing  a  credit  business.  The  fallacy 
and  the  danger  of  his  position  is  that  he  is  doing  this  credit 
business  at  a  cash  price. 

"If  you  ask  a  jobber  or  manufacturer  whether  he  does  a 
credit  business,  he  will  answer,  *Yes,  we  have  a  credit  price 


I  >.i 


'i' 

■J 


ife 


1 


i» 


\\     ' 


388 


NEW   COLLECTION   METHODS 


which  is  net  60  days.  Also  we  have  a  cash  price  which  is  2 
per  cent  lower/  It  may  be  even  5  per  cent  lower.  The  un- 
explained problem  is  then,  why  does  the  retailer  do  a  credit 
business  at  a  cash  price?" 

Perhaps  the  nearest  approach  to  an  answer  that  can  be 
given  is  that  the  customers  do  not  understand  the  situation, 
and  the  retailer  hesitates  to  explain  it  to  them.     This  is  be- 
cause he  knows  that  the  charge  account  privilege  is  a  powerful 
asset  in  his  business.     It  gets  him  customers  who  find  it  an 
annoyance  to  pay  cash  with  every  purchase.    It  stabilizes  his 
business,  enabling  him  to  estimate  the  amount  of  his  future 
sales,  and  to  buy  accordingly,  because  charge  customers  are 
repeat  customers.    It  enlarges  his  sales  to  individuals  because 
the  majority  of  retail  purchasers  restrict  their  credit  pur- 
chases to  a  few  stores  in  a  given  line,  knowing  full  well  that 
it  is  harder  to  keep  track  of  one's  expenditures  if  they  are 
scattered  over  a  number  of  stores.    Also  the  charge  account 
encourages  individuals  to  buy  more  by  making  purchase  easier, 
since  the  unplea:antness  of  parting  with  one's  money  is  post- 
poned.   On  this  account  some  believe  that,  as  a  check  on  need- 
less spending,  all  retail  buying  should  be  strictly  for  cash. 
But  advocates  of  this  method  are  usually  men  who  have  a 
strong  belief  in  the  natural  extravagance  of  womankind,  and 
who  would  be  the  last  to  advocate  a  cash  basis  for  their  own 
business  transactions.     The  woman  of  America  is  the  chief 
retail  purchaser  of  America,  and  she  has  come  to  appreciate 
the  convenience  of  a  charge  account.     Many  of  her  reasons 
are  the  same  as  those  influencing  business  men  to  use  credit. 
The  retail  merchant's  charge  account,  then,  is  to  be  looked 
on  as  a  service  granted  to  his  customers,  and  maintained  for 
the  purpose  of  enlarging  his  business.     He  may  abandon  it 
and  put  his  store  on  a  cash  basis  for  various  special  reasons 
or  as  an  emergency  measure,  but  under  ordinary  circum- 
stances, if  he  has  sufficient  capital,  he  will  continue  to  allow 


RETAIL    CREDITS 


389 


goods  to  be  charged  and  paid  for  at  the  end  of  the  month. 
If  the  service  becomes  '00  expensive  by  reason  of  poor 
collection,  the  remedy  is  to  correct  collection  methods  rather 
than  abandon  a  legitimate  source  of  profitable  business. 

"With  a  good  collection  system,"  says  a  wise  retailer,  *T 
can  allow  charge  accounts  within  certain  limits  to  nearly 
everybody;  I  can  keep  down  my  prices  to  meet  out-of-town 
competition ;  I  can  give  service  that  will  beat  any  competition ; 
and  I  can  make  friends  by  the  collection  letters  I  write.  Im- 
possible, you  say?    But  I  can  show  you  the  results." 

Granting  Credit 

There  can  hardly  be  any  question  that  a  great  weakness 
of  the  retailer  is  his  looseness  in  credit-granting.  "He  finds 
it  easier,"  says  a  bulletin  of  the  National  Association  of  Credit 
Men,  "to  increase  his  line  of  credit  with  the  wholesaler  than 
to  collect  money  from  his  customers.  He  does  not  give  suf- 
ficient attention  to  the  character  and  paying  quality  of  his 
customers.  He  will  take  risk  after  risk  without  information 
on  these  points." 

It  is  perfectly  easy  to  understand  why  the  retailer  finds  it 
uncomfortable  to  obtain  credit  information  and  to  make  the 
proper  impression  on  the  customer's  mind  at  the  time  of  the 
credit  interview.  He  wrongly  looks  on  it  as  a  non-productive 
occupation,  just  as  executives  in  other  lines  of  business  some- 
times look  on  the  work  of  the  credit  and  collection  depart- 
ments as  non-productive.  There  is  no  money  in  it,  he  thinks. 
He  believes  he  can  pick  up  the  information  he  needs  as  time 
goes  on.  And  he  is,  to  put  it  frankly,  afraid  to  say  a  word 
about  credit  lest  he  give  offense  and  drive  the  customer  away. 
But  let  him  once  look  on  the  problem  as  an  opportunity  for 
making  a  sale  that  may  mean  thousands  of  dollars  during  the 
next  several  years,  and  he  will  no  longer  consider  it  a  non- 
productive occupation. 


ii 


i  ; 


I 


390 


NEW   COLLECTION   METHODS 


"Selling"  a  Retail  Charge  Account 

"When  new  customers  come  into  my  store,"  said  a  pros- 
perous retail  merchant,  "I  *sell  them  the  store'  and  I  'sell 
them  credit/  I  let  them  see  that  the  two  are  connected.  All 
requests  for  credit  are  referred  directly  to  me.  Then  I  have 
the  chance  to  give  the  new  customers  a  hearty  welcome,  and 
start  right  in  to  tell  them  what  the  store  can  do  for  them.  I 
take  a  step  or  two  out  to  the  aisle  where  we  can  see  some  of 
the  interesting  features  of  the  store.  Then  I  ask,  'Have  you 
been  in  town  long  ?'  I  tell  them  right  away,  without  appearing 
to  notice  their  answers,  how  long  I  have  been  in  business  and 
how  the  town  has  changed  in  those  years.  Then  it  is  natural 
to  show  how  the  business  has  grown  and  to  tell  about  some 
of  the  lines  we  handle.  In  between,  I  am  asking  questions 
about  the  customers'  location,  nature  of  employment,  past 
location  and  employment,  employers'  names  and  how  things 
are  going.  If  the  people  are  strangers  in  town,  I  can  often 
give  them  helpful  suggestions,  though  I  take  pains  not  to 
overdo  this.  I  should  have  said  that  I  always  introduce  the 
customers  to  the  clerk  who  brought  them  back  to  my  desk  and 
to  one  or  two  of  the  other  clerks,  if  I  get  a  chance.  If  the 
clerk  has  already  made  the  sale,  he  has  instructions  to  get 
out  of  the  way  as  fast  as  possible  after  this  introduction,  so 
as  not  to  seem  officious.  If  he  has  not  made  the  sale,  I  end 
by  turning  the  customer  over  to  him.  Then  I  call  attention 
to  some  article  that  is  plainly  price-marked  and  show  it  as  an 
example  of  the  kind  of  goods  we  handle  and  the  prices  we  set. 
It  is  easy  to  talk  about  the  high  cost  of  living  and  the  efforts 
this  store  is  making  to  reduce  expenses  and  keep  prices  as  low 
as  possible.  You  understand  that  I  don't  always  go  through 
the  full  performance.  But  sometimes,  when  the  man  or 
woman  gets  interested,  it  is  surprising  how  long  a  conversa- 
tion we  have.  A  waste  of  time?  Why,  I  figure  that  a  fifteen- 
minute  conversation  of  this  kind  may  mean  a  $10,000  sale  or 


RETAIL   CREDITS 


391 


more.  I'm  selling  the  store.  If  that  man  or  woman  does 
business  with  me  for  the  next  ten  or  twenty  years,  as  may  be 
the  case,  it  is  wonderfully  helped  by  the  favorable  first  im- 
pression made  at  that  interview. 

"By  the  time  this  conversation  is  finished — and  you  may 
be  sure  I  cut  it  short,  if  the  customers  show  the  least  sign  of 
being  in  a  hurry — we  always  step  back  to  my  desk  where  I 
ask  two  or  three  definite  questions  and  put  them  down  on  a 
card.  The  customers  see  me  doing  this  but  do  not  sit  where 
they  can  see  the  card.  I  confine  these  formal  questions  to  the 
amount  of  income,  which  I  never  fail  to  ask,  and  to  any  other 
absolutely  necessary  data  which  my  conversation  has  not 
brought  out.  Sometimes  the  question  about  income  is  the 
only  one  I  ask  at  this  point.  Then  I  state  the  terms  of  the 
store,  always  in  the  same  way.  *We  will  send  you  a  record 
of  each  purchase  at  the  time  of  delivery  so  you  can  be  sure 
you  got  what  you  ordered.  Then  we  send  an  itemized  state- 
ment at  the  end  of  the  month.  Payment  is  due  at  that  time.' 
After  that,  very  often,  it  is  possible  to  say  a  few  words  about 
how  glad  I  am  to  have  good  charge  account  customers  and 
what  splendid  people  I  have  the  privilege  of  doing  business 
with. 

"I  have  to  guard  against  making  this  interview  too  long 
on  the  sales  side,  for  fear  that  the  customers  will  think  I  am 
trying  to  make  them  buy  something  they  don't  want.  Also  I 
am  exceedingly  careful  not  to  say  too  much  about  the  charge 
account.  And  almost  everything  I  do  say  is  said  imperson- 
ally, with  reference  to  general  conditions  in  the  town  and  my 
experience.  Then,  too,  I  always  'sell  them  the  store.'  If  the 
credit  looks  pretty  weak,  I  say  something  about  people  who 
are  regular  customers  of  other  stores  but  who  come  in  fre- 
quently to  us  and  pay  cash  because  they  like  our  goods,  our 
service,  and  our  prices.  In  this  case,  too,  I  make  the  formal 
interview  at  my  desk  just  a  Httle  longer  and  make  it  cover 


4' 


'A 


J' 


•r^ 


I 


392 


NEW  COLLECTION   METHODS 


more  ground.  Then  no  matter  what  sort  of  credit  limit  I  put 
on  purchases,  or  even  if  I  refuse  credit  altogether,  I  have  done 
my  best  to  make  good  friends  for  the  store." 

What  Is  the  Meaning  of  a  Charge  Account? 

There  are  two  reasons  why  the  retailer  cannot  extend 
credit  to  his  customers  in  the  same  way  that  a  wholesaler  or 
a  manufacturer  extends  credit  to  him.  In  the  first  place,  while 
the  retailer's  amount  of  ready  cash  or  liquid  assets  may  be 
considerably  less  than  the  amount  of  his  purchases,  still  he  has 
other  assets  which  he  can  either  liquidate  fully  or  which  will 
be  productive  of  some  income  within  the  credit  period 
accorded  by  the  wholesaler  and  manufacturer.  These  sellers 
calculate  that  the  retailer's  normal  expectation  of  business  for 
the  season  will  reach  a  certain  sum  and  that,  accordingly,  his 
purchases  for  that  season  from  all  sources  should  reach  a 
certain  proportion  of  his  total  expectancy.  Among  the  items 
on  which  their  calculation  is  based,  is,  for  example,  the  stock 
on  hand.  The  reason  credit  can  be  extended  partly  on  the 
basis  of  these  goods  is  that  they  grow  more  valuable  while 
in  the  possession  of  the  retail  merchant.  When  they  come  to 
be  sold,  his  customers  pay  him  for  his  trouble  in  selecting 
them,  buying  them,  storing  them  until  they  are  wanted,  and 
selling  them  in  the  small  quantities  desired  by  each  consumer. 

The  goods  bought  by  the  ordinary  customer  cannot  be 
made  the  basis  of  retail  credit  in  the  same  way  as  those  bought 
by  the  merchant,  because  they  are  not  productive  of  income. 
They  do  not  grow  more  valuable,  but  less  valuable,  while 
they  are  in  his  hands.  As  the  authorities  on  economics  would 
say,  the  retailer  adds  a  utility  to  the  goods  he  handles,  but  the 
consumer  destroys  this  utility. 

For  another  reason,  the  retail  merchant  has  not  sufficient 
capital  to  carry  on  a  credit  business  like  that  of  some  jobbers 
and  manufacturers.     The  burden  of  carrying  the  long-time 


RETAIL    CREDITS 


393 


I 


credit  obligations  of  his  community  should  properly  rest  on 
the  shoulders  of  the  bank.  The  new  trade  acceptance  plan 
helps  the  retail  merchant  in  case  of  need  to  fall  back  on  the 
bank  with  unusual  ease. 

There  is  every  reason  why  a  retailer  should  tactfully  and 
courteously  explain  these  matters  to  a  customer  who  has  been 
taking  it  for  granted  that  he  can  allow  his  accounts  to  run  or 
who  is  asking  for  unreasonable  extensions  of  time.  "I'd  be 
glad  to  help  you  out  with  a  personal  loan  if  I  had  the  money," 
he  might  say,  "but  the  retail  business  isn't  built  on  a  basis 
that  allows  me  to  carry  accounts  indefinitely.  Now,  I  just  got 
an  invoice  of  goods  from  Green  and  Company  this  morning 
— ^And,  by  the  way,  I  want  you  to  see  those  goods  before  you 
go.  You  don't  want  to  buy  them,  I  know,  but  I  want  you  to 
see  them  because  there  are  some  mighty  pretty  patterns  there 
and  it's  just  a  pleasure  to  look  at  them. — ^Well,  now,  Green 
and  Company  are  going  to  give  me  credit  on  the  basis  of  those 
goods  because  I  shall  sell  them  and  shall  sell  other  goods 
already  on  hand  and  pay  Green  and  Company  their  bills.  But 
it's  ridiculous  for  me  to  think  that  you're  going  to  sell  your 
shoes,  your  hat,  and  the  dishes  off  your  table  to  pay  my  bills. 
No,  the  fact  of  it  is,  I  figure  my  business  on  a  thirty  days' 
basis  and  establish  my  prices  accordingly,  and  if  I  start  out 
to  carry  people  sixty  or  ninety  days,  I  shall  have  to  go  to  the 
bank  and  borrow  the  extra  capital  to  do  it  with  and  add  the 
interest  charges  to  the  prices  of  the  goods  I  sell.  Most  of  my 
customers  won't  stand  for  that,  and  we've  got  to  treat  every- 
body alike.  You  know  how  that  is,  yourself."  Then  he  can 
offer  to  accept  part  payment,  a  note,  or  a  trade  acceptance. 

Objections  to  Long  Retail  Credits 

The  two  foregoing  reasons  against  retail  credit,  namely, 
(i)  the  retailer's  comparative  lack  of  capital,  and  (2)  the 
fact  that  the  consumer  destroys  the  utility  of  the  goods  he 


3t 


.  '^: 


w 


394 


NEW  COLLECTION   METHODS 


buys  so  that  they  cannot  be  considered  a  basis  for  credit,  can, 
as  has  been  shown,  be  tactfully  presented  to  customers. 
Another  fundamental  reason  which  cannot  be  so  easily  dis- 
cussed lies  in  the  different  nature  of  the  credit  risk.  The  re- 
tailer is  definitely  established  in  a  particular  location  and  has 
made  a  considerable  investment,  the  value  of  which  is  entirely 
dependent  on  his  staying  there  for  a  considerable  time.  De- 
tailed information  concerning  the  state  of  his  business  can 
be  obtained  from  which  the  skilled  grantor  of  credit  can  form 
a  very  accurate  estimate  as  to  the  amount  of  risk  he  may 
venture  upon.  But  the  retail  customer  is  not  so  much  a  fixture 
in  the  community.  He  can,  theoretically  at  least,  pack  up  his 
personal  belongings  and  his  troubles  in  his  old  kit  bag  and 
leave  for  parts  unknown.  It  is  almost  impossible,  moreover, 
to  tell  from  outward  appearances  the  amotmt  of  his  income 
and  his  ability  to  pay. 

It  may  be  argued  that  in  communities  which  are  fortunate 
in  having  a  well-established  credit  bureau  the  financial  status 
of  a  large  number  of  citizens  is  accurately  known,  so  that 
long-time  credit  can  be  granted  them,  and  they,  being  well- 
to-do  citizens,  can  pay  the  consequent  high  prices.  But  if  this 
theory  is  carried  into  practice,  it  works  hardship  to  all  the 
members  of  the  community  who  are  less  able  to  pay,  to  the 
small-salaried  people  and  to  the  laborers  on  wages  that  barely 
permit  them  and  their  wives  and  children  to  live  from  week 
to  week.  Long-time  retail  credits  force  prices  up  and  are  a 
grave  injustice  to  the  poor. 

Still  another  objection  to  long  retail  credits  lies  in  their 
relatively  high  expense  as  compared  with  wholesale  credit. 
The  labor  of  handling  a  great  many  small  items  runs  up  the 
retailer's  cost  of  handling  charge  accounts  to  such  a  high 
figure  under  the  best  of  conditions  that  he  dare  not  inflict  on 
his  business  the  heavy  burden  of  tying  up  considerable  sums 
of  his  capital  unproductively.     Those  thousands  of  dollars 


RETAIL   CREDITS 


395 


should  be  reinvested  in  his  business  and  earning  money  for 
him. 

The  Reason  for  30-Day  Credit 

The  retailer  cannot  do  a  credit  business.  The  charge 
account  system  is  merely  a  convenience  for  the  store's  cus- 
tomers. The  usual  retail  store  has  not  enough  capital  to 
finance  the  social  plungers  of  the  community — a  highly  hazard- 
ous business  for  any  financier.  It  assumes  that  its  customer  is 
anticipating  his  purchases  by  not  more  than  30  days,  since 
this  is  the  usual  time  when  retail  customers  receive  their  own 
salaries  or  wages,  or  have  their  own  bills  paid  if  they  are  pro- 
fessional men.  The  theory  is  that  the  customer  either  has  the 
cash  in  his  pocket,  but  wants  to  avoid  the  bother  of  pulling  it 
out,  or  that  he  has  it  in  the  bank  and  prefers  to  save  time  by 
drawing  all  his  checks  at  a  single  time;  or  that  he  does  not 
himself  receive  payment  for  the  services  he  performs  in  the 
present  month  until  the  first  of  the  next  month,  and  that  con- 
sequently he  does  not  pay  for  services  received  or  goods  re- 
ceived until  the  same  time.  In  other  words,  he  trusts  his  em- 
ployer for  30  days  and  the  retailers  of  the  town,  in  like  man- 
ner, trust  him  for  30  days. 


f. 


ii 


r 


ill 


1   ' 


CHAPTER  XXXVI 

COLLECTION  METHODS  OF  RETAIL  MERCHANTS 

The  Retailer's  Credit  Record 

The  simplest  sort  of  card-file  will  do  for  the  average  re- 
tailer as  a  record  of  credit  information.  The  items  he  needs 
especially  are:  full  name  and  address,  occupation,  name  and 
address  of  employers,  if  any,  and  amount  and  sources  of  in- 
come. He  may  also  ask  whether  real  estate  is  owned,  and  if 
so,  by  what  member  of  the  family  and  where  the  property  is 
located ;  what  securities  are  held ;  bank  in  which  the  customer 
has  deposits;  names  of  other  stores  with  whom  the  applicant 
does  a  credit  business,  and  names  of  other  references.  While 
these  latter  items  are  worth  knowing,  they  are  seldom  asked 
for  except  by  stores  in  large  cities,  and  then  only  in  case  pur- 
chases are  likely  to  run  to  considerable  amounts. 

Some  successful  merchants  make  a  practice  of  keeping 
card-records  of  every  customer,  whether  cash  or  charge,  with 
whom  they  do  business,  and  use  it  primarily  for  sales  infor- 
mation, though  it  contains  necessary  credit  data  as  well.  A 
few  facts  about  the  personality  of  the  purchasing  members 
of  the  family,  their  likes  and  dislikes  in  merchandise,  and  any 
important  purchases,  find  equal  space  on  these  records  together 
with  the  information  whether  the  customer  is  slow  pay  or 
poor  pay.  The  names  and  ages  of  children  in  the  family  are 
a  valuable  item. 

The  Ruedebusch  System 

In  the  town  of  Mayville,  Wisconsin,  is  located  a  thriving 
country  department  store  the  proprietors  of  which  hold  posi- 

396 


RETAIL    COLLECTIONS 


397 


tWe  views  on  the  comparative  merits  of  cash  and  credit.  For 
their  own  use  they  have  devised  a  system  which  is  both  easy 
to  administer  and  certain  to  bring  satisfactory  results.  The 
class  of  trade  to  whom  they  sell  is  no  different  from  that 
of  many  other  retailers.  *We  have  charge  accounts,"  they 
say  "with  very  many  classes  of  people;  many  good  farmers 
and  renters;  hired  men  and  hired  girls;  all  kinds  and  classes 
of  'city  people' ;  and  a  pretty  large  percentage  of  wage  earners, 
working  in  Mayville  industries. 

"The  total  net  sales  of  the  Charles  Ruedebusch  Company 
in  December,  1917,  were  $11,196.39.  Of  this,  $5,753-39 
were  charge  sales.  When  we  closed  our  books  on  January  10, 
19 1 8,  our  total  Accounts  Receivable  amounted  to  $3,953.02. 
The  net  loss  on  accounts  in  19 17  was  less  than  $50  (over  three 
times  that  much  was  transferred  to  Doubtful  Accounts  in 
19 1 7,  but  we  collected  enough  of  former  Doubtful  Accounts 
to  reduce  the  net  loss  to  the  above  amount. ) 

"The  very  simple  work  on  our  system  is  done  in  leisure 
moments  by  the  cashier,  who  used  to  get  $25  per  month,  and 
has  now  been  made  very  happy  by  a  raise  to  $35  per  month. 
Our  manager  spends  from  one-half  to  one  hour  twice  a 
month  sitting  in  his  easy  chair  and  marking  collection  lists. 
No  extra  expense  or  trouble  in  all  of  this  for  us ;  there  is,  of 
course,  some  extra  amount  for  postage,  stationery,  and  letter 
writing;  but  the  total  of  this  is  but  an  insignificant  amount  in 
a  year,  and  a  great  part  of  it  is  made  up  by  saving  time  and 
stationery  on  petty  accounts. 

"The  great  saving  for  us  through  this  system  comes  in 
the  following:  $180  per  year  saved  on  interest  (the  same 
volume  of  credit  business  done  with  $3,000  less  investment) 
— and  several  times  that  amount  saved  annually  on  losses  and 
collection  expenses.  By  far  the  greatest  advantage,  however, 
consists  in  still  another  thing:  our  former  crude  methods 
always  caused  considerable  irritation  on  both  sides  and  kept 


■/' 


'/ji 


r 


K 


i 


III! 


!    !    > 


398 


NEW   COLLECTION   METHODS 


a  lot  of  persons  away  from  our  store,  while  we  now  make  all 
our  charge  accounts — even  the  uncollectible  ones — ^bring  us 
in  extra  trade. 

"Nobody  could  ever  induce  our  store  to  go  back  to  the 
former  ways,  or  to  a  spot  cash  or  thirty  days'  limit  basis,  not 
by  thousands  of  dollars." 

The  secretary  of  the  company  has  prepared  many  such 
systems  for  other  retailers,  and  knows  whereof  he  speaks. 
"Positive  terms,"  he  says,  "strictly  applied  to  all  customers 
are  positively  wrong  for  the  country  dealer.  He  should  give 
credit  to  one  man  for  a  few  days  or  a  week  only,  demand 
monthly  settlements  from  another,  give  a  third  several  months 
to  settle  up,  tell  another  that  he  need  not  pay  at  all  until  it 
suits  him,  and  be  very  pleasant  about  it  in  every  case,  always 
showing  that  his  main  object  is  to  serve  and  to  accommodate 
everyone  as  well  and  as  much  as  possible."  This  retailer  be- 
lieves that  a  merchant  who  gives  up  his  credit  business  simply 
helps  the  big  mail-order  concerns,  and  that  he  has  no  need  to 
lose  money  in  handling  his  charge  accounts. 

The  basis  of  this  system  is  first,  a  carefully  specified  col- 
lection system  for  the  bookkeeper  and  another  for  the  man- 
ager, prepared  in  detail  and  bound  up  with  a  book  of  specially 
prepared  form  letters  covering  every  situation  likely  to  arise, 
and  classified  under  the  headings  of  "Monthly  Statement 
Accounts,"  "Extra  Favor  and  Confidence  Accounts,"  and 
"General  Accounts."  Separate  treatment  is  given  to  Single 
Bills  (accounts  for  only  one  sale)  and  Petty  Accounts  (ac- 
counts of  $2  or  less) .  Under  each  of  these  headings  is  a  series 
of  letters  closing  in  each  case  with  a  notification  to  the  cus- 
tomer of  some  final  disposal  of  his  bill,  whether  this  may  mean 
sending  it  to  a  lawyer,  or  merely  transferring  it  to  Doubtful 
Accounts. 

A  portion  of  the  contents  of  such  a  system  prepared  for  a 
Wisconsin  merchant  runs  as  follows: 


RETAIL   COLLECTIONS 


Correspondence  and  Collecting  System 

Monthly  Statement  Accounts  ("M.  S.") 

1.  Introductory  letter— requesting  monthly  settlement. 

2.  First  request  for  payment. 

3.  Second  request  for  payment. 

4.  Third  request  for  payment. 

5.  Last  request  before  going  to  lawyers  f or^  collection. 
500.    Last  request  before  transf errmg  to  "D.  A. 

6.  Notice  of  transfer  to  D.  A. 

Single  Bills  CS.  B/') 

7.  First  request  for  payment. 

8.  Second  request  for  payment. 

9.  Last  request  before  going  to  lawyers  for  collection. 
900.    Last  request  before  transferring  to  D.  A. 

ID.    Notice  of  transfer  to  D.  A. 

Petty  Accounts  ("F") 

11.  First  request  for  payment— advertising  letter. 

12.  Second  request  for  payment. 

13.  Notice  of  transfer  to  D.  A. 

Extra  Favor  and  Confidence  Accounts  (''X'') 

14.  First  request  for  payment 

15.  Second  request  for  payment. 

16.  Third  request  for  payment. 

17.  Last  request  before  transferring  to  D.  A. 

18.  Notice  of  transfer  to  D.  A. 

General  Accounts  {"G") 


399 


First  request  for  payment. 
Second  request  for  payment. 
Third  request  for  payment.  ^ 

Last  request  before  going  to  lawyers  for  collection. 
2200.    Last  request  before  transferring  to  D.  A. 
23.    Notice  of  transfer  to  D.  A. 


19. 
20. 

21. 

22. 


:i 


24.  Notice  that  account  has  been  given  to  lawyers. 

25.  Notice  of  withdrawal  from  lawyers  and  transfer  to  u.  A. 


i 


':> 


I 


I 


400 


NEW   COLLECTION   METHODS 


At  the  end  of  the  month  the  manager  receives  from  the 
bookkeeper  a  sheet  Hsting  all  collection  accounts.  One  column 
on  this  sheet  contains  symbols  showing  Vvhat  collection  letter 
was  last  issued  to  this  customer.  The  manager  thereupon 
indicates  in  another  column  what  letter  he  wishes  next  to  use; 
or  he  dictates  a  special  letter  to  fit  the  case;  or  makes  some 
alteration  in  the  usual  form  letter.  The  letter  indicated  is 
then  typed  by  the  bookkeeper  and  presented  to  the  manager 
for  his  signature. 

A  typical  series  of  letters  issued  according  to  one  of  these 
systems  is  the  following,  used  for  monthly  statement  accounts. 
The  resale  material  in  these  makes  a  pleasant  impression,  while 
it  does  not  interfere  with  the  impression  of  promptness  made 
upon  the  reader. 

1.  Introductory  letter,  requesting  monthly  settlement: 

Dear  Sir: 

In  accordance  with  my  new  System  I  am  sending  you  the 
first  itemized  Monthly  Statement  of  your  account.  These  state- 
ments will  be  gotten  out  to  you  regularly  on  or  shortly  after  the 
first  of  every  month.  By  billing  them  you  will  have  a  neat,  com- 
plete, detailed  record  of  your  entire  charge  account  with  me. 

I  am  sure  that  the  goods  which  you  have  bought  of  me  are  good 
and  that  the  prices  are  right.  I  can  assure  you  that  I  can  do  fully 
as  well  and  better  for  you  in  the  future,  as  the  great  advantages 
which  I  am  gaining  through  co-operation  with  other  first-class 
merchants  are  constantly  increasing. 

I  surely  appreciate  the  business  which  you  are  giving  me  and 
wish  to  take  this  opportunity  of  thanking  you  for  it. 

Very   truly  yours, 

2.  First  request  for  payment: 

Dear  Sir: 

A  considerable  part  of  the  amount  on  the  enclosed  statement 
is  past  due.  Evidently  you  overlooked  this  last  month.  I  hope  you 
will  settle  it  before  the  next  monthly  statements  are  sent  out. 

I  surely  appreciate  your  trade  and  am  always  anxious  to  please 
you,  not  only  by  giving  you  the  best  possible  service  my  store  can 


RETAIL    COLLECTIONS 


401 


offer,   but   also   by   extending   credit   to   you   whenever   that   makes 

buying  more  convenient  for  you.    My  prices,  however,  are  all  figured 

on  a  cash  basis,  so  I  must  see  that  my  book  accounts  never  represent 

a  large  percentage  of  my  investment  in  this  business. 

In  case  it  is  inconvenient  for  you  to  pay  the  entire  amount  soon, 

please  pay  something  on  account  and  inform  me  when  I  may  expect 

the  balance.  ,^        ^    , 

Very  truly  yours 

3.  Second  request  for  payment: 

Dear  Sir: 

Last  month  I  sent  you  a  letter  in  which  I  called  your  attention 
to  the  fact  that  some  of  the  items  on  your  account  were  past  due. 
I  now  see  that  you  have  made  no  payment  on  this  account  in  the 
last  30  days  and  am  wondering  what  might  be  the  cause  of  the  delay. 
Please  be  sure  to  pay  up  before  the  next  revision  of  my 'accounts 
(15th  to  20th). 

This  is  very  important  for  me,  as  I  must  follow  my  established 
rules  and  must  keep  my  accounts  low. 

But  there  is  one  thing  which  is  still  more  important,  and  that 
is  to  please  and  satisfy  you  so  that  I  will  be  sure  of  retaining  your 
trade,  which  I  value  very  highly. 

If  you  have  found  anything  which  does  not  appear  right,  just, 

or  fair  to  you,  please  be  sure  to  tell  me  about  it.     It  will  give  me 

an  opportunity  of  explaining  my  methods  and  possibly  of  improving 

them.  __  , 

Very  truly  yours, 

4.  Third  request  for  payment: 

Dear  Sir: 

I  wish  again  to  call  your  attention  to  your  account.  You  are 
allowing  payment  to  run  behind.  You  have  already  received  two 
letters  from  me  concerning  this  account,  but  you  have  not  responded 
to  either  of  them. 

When  I  opened  this  charge  account  for  you  I  thought  I  was 
making  things  easier  and  more  convenient  for  you;  and  I  was  very 
glad  to  accommodate  you.  But  I  fully  expected  that  you  would 
not  postpone  payment  for  such  a  long  time.  As  all  my  prices  are 
made  on  a  cash  basis,  it  is  important  that  accounts  due  me  are 
paid  promptly.  I  cannot  afford  to  extend  credit  to  customers  who 
do  not  co-operate  with  me  in  their  payments. 

I  shall  expect  an  immediate  settlement  of  your  account. 

Very  truly  yours, 


1  • 


V-i 


" } 


402 


NEW  COLLECTION   METHODS 
5.    Last  request  before  going  to  lawyers  for  collection: 


RETAIL   COLLECTIONS 


403 


Dear  Sir: 

I  really  cannot  understand  why  you  have  not  paid  any  attention 
to  my  letters  asking  for  a  settlement  of  your  account. 

It  is  now  over  four  months  ago  that  you  bought  the  goods 
charged  on  your  account.  I  think  you  will  agree  with  me  that  I 
have  been  very  lenient  and  considerate  and  that  I  am  entitled  to  a 
payment  without  any  more  delay. 

Unless  you  pay  your  account  within  the  next  ten  days  I  shall 
be  forced  to  the  conclusion  that  I  must  adopt  more  effective  measures. 
Accordingly,  if  you  do  not  pay  before  the  ten  days  are  up  I  shall 
hand  your  account  to  my  lawyers  for  immediate  collection. 

I  dislike  to  adopt  such  strict  and  harsh  methods  or  even  to 
mention  them,  but  I  cannot  grant  you  any  more  time. 

Very  truly  yours, 

500.    Last  request  before  transferring  to  D.  A,: 

Dear  Sir: 

I  am  at  a  loss  to  understand  why  you  have  not  responded  to 
my  letters  asking  you  to  make  a  payment  on  your  account  which  is 
long  past  due.    What  does  this  mean  ? 

The  only  explanation  which  I  can  find  for  your  action  is  that 
it  would  be  impossible  for  you  to  make  a  payment  to  me  at  the 
present  time  without  causing  yourself  or  those  near  and  dear  to 
you  great  suffering.    Is  that  correct? 

I  surely  do  not  want  to  cause  you  any  great  hardship,  but  your 
account  must  positively  not  appear  in  my  Register  next  month.  If 
it  is  not  paid  before  the  end  of  this  month  I  will  close  it  by  transfer- 
ring it  to  my  list  of  "Poor  and  Doubtful  Accounts." 

I  am  giving  you  these  extra  four  weeks  because  I  know  you 

would  not  want  your  name  to  go  on  that  list  if  you  can  prevent  it 

in  any  way.    You  should  put  forth  every  effort  to  pay  your  account 

before  the  time  is  up. 

Very  truly  yours, 

Transfer  to  Doubtful  Accounts 

But  what  is  the  retailer  to  do  when  his  collection  efforts 
fail,  and  he  believes  the  customer  cannot  pay? 

Mr.  Ruedebusch  answers,  "These  people  are  my  good 
friends  and  neighbors  and  I  am  sorry  for  them.     We  want 


their  cash  business.  They  are  not  going  to  leave  town ;  they 
will  still  need  clothes  and  shoes;  they  can  get  better  goods 
and  service  from  us  than  from  anybody  else — and  they  know 
it.  But  if  they  think  they  will  be  hounded  for  their  bill  they 
will  never  come  near  us.  If  we  lose  their  good-will  too,  they 
will  make  other  enemies  for  us.  I  want  them  to  hold  their 
heads  high  when  they  come  into  my  store,  and  to  keep  right 
on  coming.    That  means,  sometime,  they  will  pay." 

The  result  of  his  reasoning  is  that  he  transfers  the  account 
to  losses,  and  tells  his  customer  about  it.  He  gives  up  the 
attempt  to  collect?  Not  at  all.  He  continues  selling  this 
customer  on  credit?  Not  that  either.  Read  the  following 
letter  and  see  how  it  solves  the  whole  problem  and  keeps  the 
trade. 

6.    Notice  of  transfer  to  D.  A.: 

Dear  Sir: 

We  are  disappointed.  We  expected  that  you  would  find  it  pos- 
sible to  make  payment  to  us  on  that  old  account  before  this  time, 
and  we  are  sorry,  indeed,  that  our  fine  record  of  collections  must  be 
spoiled  by  charging  this  to  "Losses  on  Accounts."  Fortunately  they 
have  been  very  small  so  far,  and  we  suppose  that  there  was  some 
sad  reason  for  your  failure  to  pay  up. 

We  have  today  closed  your  account  by  transferring  it  to  our 
list  of  "Doubtful  Accounts."  This  does  not  mean  that  we  have 
given  up  hopes  of  collecting  it.  It  simply  means  that  we  did  not 
want  it  to  appear  "open"  in  our  charge  accounts  hereafter. 

We  want  you  and  your  family  to  visit  our  store  very  often  to 
see  all  the  fine  new  things  and  the  constantly  increasing  advantages 
which  we  are  always  offering.  In  these  visits  you  will  never  be 
bothered  with  this  unpaid  account.  That  is  for  our  office  people  to 
attend  to,  and,  as  your  account  is  now  "closed,"  they  will  not  send 
you  any  more  "dunning  letters"  until  your  financial  condition  has 
improved. 

It  is  our  sincere  wish  that  better  times  may  come  for  you  in  the 
future,  and  we  know  that  you  will  then  be  glad  to  remember  and 
pay  this  old  debt.  It  is  ahvays  particularly  pleasant  when  we  re- 
ceive a  payment  on  doubtful  accounts  that  have  been  charged  to 
"Losses."  We  feel  sure  that  you  will  cause  us  this  pleasure  some 
time,  hence  we  will  not  worry  about  your  account  hereafter,  but  will 


1 


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Will 


404 


NEW   COLLECTION   METHODS 


try  to  serve  you  so  well  that  we  will  always  deserve  and  receive  all, 
or  a  good  share,  of  your  trade  in  our  lines. 

Yours  truly. 

When  the  store  management  concludes  that  a  customer's 
failure  to  respond  is  due  to  stubbornness  rather  than  to  real 
inabiHty  to  pay,  the  account  is  turned  over  to  a  local  attorney. 
But  if  he  reports  failure,  a  letter  is  issued  which  in  the  first 
three  paragraphs  shows  the  strength  of  the  creditor's  position, 
while  the  last  two  duplicate  those  of  the  preceding  letter. 

25.  Notice  of  withdrawal  from  lawyers  and  transfer 
to  D.  A.: 

Dear  Sir: 

Our  attorneys  have  informed  us  that  you  do  not  seem  to  be 
willing  to  pay  the  account  whi<:h  we  transferred  to  them  for  col- 
lection. They  advised  us  to  bring  suit  against  you  at  once,  in  order 
to  secure  this  account,  full  interest  thereon,  and  all  expenses  by  a 
judgment,  which  can  surely  be  turned  into  cash  some  time. 

We  do  not  like  the  idea  of  loading  you  up  with  heavy  costs 
and  a  consta'tly  increasing  debt,  and  we  fear  that  you  may  not  be 
able  to  pay  up  at  the  present  time  without  causing  yourself  and  those 
near  and  dear  to  you  great  suffering. 

After  due  consideration  we  have  come  to  the  following  con- 
clusion. We  will  withdraw  this  account  from  our  lawyers,  and  will 
close  it  by  transferring  it  to  our  list  of  "Doubtful  Accounts."  This 
does  not  mean  that  we  have  given  up  hopes  of  collecting  it.  It 
means  simply  that  we  did  not  want  it  to  appear  "open"  among  our 
accounts  hereafter.     (For  last  two  paragraphs  see  preceding  letter.) 

Method  of  a  Small-Town  Merchant 

One  of  America's  famous  small-town  merchants,  a  man 
who  does  a  business  that  many  a  metropolis  might  envy,  bases 
his  collection  methods  on  a  twofold  classification  of  his  cus- 
tomers. To  the  reasonable  man  who  will  respond  to  a  friendly 
request;  he  writes — after  statements  with  suggestive  "stickers" 
pasted  on  them  have  had  no  effect — "I  have  a  heavy  bill  to 
meet  in  a  couple  of  days  with  one  of  my  wholesalers.  Can 
you  help  me  out?"    This  appeal  to  good- will  coming  from  a 


RETAIL   COLLECTIONS 


405 


prosperous  and  successful  merchant  has  in  it  no  element  of 
weakness,  and  results  in  the  securing  of  a  part  payment. 

But  if  the  debtor  is  of  the  shifty  or  cross-grained  type,  the 
merchant  appeals  to  his  curiosity.  He  writes  him,  "Dear 
John,  I  want  to  see  you  about  something.  Could  you  come 
in  tomorrow  evening  about  closing  time?"  In  nine  cases  out 
of  ten,  when  the  man  comes  in,  he  brings  the  payment  with 
him,  suspecting  that  this  is  the  cause  of  the  letter.  But  the 
merchant  outguesses  him  by  having  something  that  he  really 
does  want  to  talk  about,  in  no  way  related  to  the  account.  If, 
however,  the  delinquent  does  not  voluntarily  open  the  subject 
of  the  account,  the  merchant  finds  it  easy  to  introduce  the  topic. 

Getting  Them  Used  to  Statements 

In  many  districts  where  long-time  retail  credit  has  been 
the  rule,  customers  regard  it  as  a  mortal  offense  to  approach 
the  subject  of  their  account.  This  unhealthy  condition  abso- 
lutely must  be  remedied,  if  the  retailer  is  to  survive.  The 
issuing  of  regular  statements  will  be  only  one  item  in  the  cam- 
paign of  reform,  but  it  is  a  necessary  one. 

A  successful  method  when  a  customer  shows  that  he  is 
angry  at  receiving  a  statement  at  the  end  of  the  month,  is  to 
say  to  him,  "Why,  John,  you're  mistaken,  I'm  not  dunning 
you.  That's  only  our  new  method  for  helping  you  to  keep 
track  of  your  purchases.  If  we  let  it  go  for  too  long  a  time, 
it  is  hard  for  you  to  find  out  any  mistakes  we  may  have 
made."  Putting  the  shoe  on  this  foot  and  appealing  to  the 
customer's  self-interest  produces  results  in  nearly  every  case ; 
while,  needless  to  say,  the  statement  and  the  conversation 
have  an  indirect  value  in  making  payments  more  prompt. 

Chapters  XV  to  XVII,  "The  Psychology  of  Collection," 
"Appeals  to  Good  Customers,"  "Appeals  to  Thick-Skinned 
Customers,"  contain  many  suggestions  as  useful  to  the  retailer 
as  to  the  wholesaler. 


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I 


CHAPTER  XXXVII 

DEPARTMENT  STORE  COLLECTIONS 

The  Department  Store's  Collection  Problem 

The  large  store,  especially  the  department  store,  has  col- 
lection problems  of  its  own,  due  to  the  fact  that  the  proprietor 
or  manager  cannot  interview  new  customers  and  applicants 
for  credit  in  person.  The  applicant  for  credit  is  usually 
brought  to  the  credit  desk  by  a  clerk  and  introduced  either  to 
an  assistant  or  to  the  credit  man.  The  interview  which  fol- 
lows is  all  too  likely  to  be  extremely  formal,  limited  to  the 
filling  out  of  a  blank  and  entirely  devoid  of  any  attempt  to 
welcome  the  customer,  to  talk  about  the  service  of  the  store, 
or  to  "sell  credit."  Often,  however,  the  opportunity  is  skil- 
fully utilized  and  the  customer  is  made  to  feel  that  despite  its 
size,  the  store  has  a  personal  interest  in  every  one  of  its 
patrons.  It  is  always  advisable  that  the  actual  granting  of 
credit  by  a  large  store  be  made  by  letter,  as  it  gives  an  oppor- 
tunity for  some  verification  of  the  information  received,  while 
the  letter  itself  can  be  so  cordial  and  explicit  as  to  make  a  fresh 
impression  on  the  recipient.  The  psychologist  would  point 
out  that  most  of  us  are  "eye-minded"  rather  than  "ear- 
minded,"  and  that  the  explanation  of  the  terms  of  the  house 
is  impressed  on  the  ear  through  the  interview  and  on  the  eye 
by  the  letter. 

Letter  When  a  New  Account  Is  Opened 

The  following  letter,  for  example,  is  used  with  consider- 
able success  by  a  prominent  department  store. 

406 


DEPARTMENT  STORE  COLLECTIONS 


407 


Dear  Madam: 

We  take  pleasure  in  granting  your  application  for  a  charge 
account.  We  shall  render  bills  on  the  first  of  the  month  succeeding 
purchase,  which  we  shall  expect  paid  by  the  fifteenth  of  that  month. 

This  store  especially  welcomes  out-of-town  accounts  and  places 
at  your  disposal  the  entire  resources  of  its  organization  to  make 
your  shopping  convenient,  whether  you  visit  us  in  person  or  send 
your  orders  by  mail.  Have  you  been  told  about  our  special  buyers 
who  become  acquainted  with  your  personal  wishes  and  do  your  shop- 
ping for  you  when  you  cannot  come  into  town?  The  enclosed  folder 
will   introduce   them   to   you. 

All  your  purchases  will  be  satisfactory,  if  our  care  and  good- 
will can  make  them  so. 

Cordially  yours. 

Handling  the  Customer  in  Arrears 

A  customer  with  an  account  in  arrears  is  likely  to  carry 
her  trade  elsewhere,  fearing  that  if  she  puts  in  an  appearance 
at  the  creditor's  store,  she  will  be  refused  credit  or  taken 
personally  to  task.  In  order  to  bring  her  into  the  store,  and 
to  imply  that  her  credit  is  still  good,  the  manager  of  a  progres- 
sive department  store  on  the  Pacific  Coast  uses  the  two  fol- 
lowing letters.  Needless  to  say,  when  the  customer  comes 
around,  she  is  tactfully  approached  and  an  arrangement  is 
made  for  payment  of  her  arrears. 

The  first  letter  to  customer  in  arrears: 

Credit  Department 
Dear  Madam: 

"What  can  the  matter  be?"  A  store  of  Smith's  progressive- 
ness  and  prestige  is  not  overlooked  lightly.  There  must  be  some 
very  interesting  reason  why  you  have  not  been  using  your  charge 
account  here  lately.     Won't  you  tell  us  what  it  is? 

No  matter  what  the  trouble  is,  we  want  to  remedy  it,  and  we 

believe  we  can. 

Have  you  visited  the  store  recently?  If  not,  a  delightful  day 
awaits  you.  New  Spring  goods  radiate  freshness  from  every  de- 
partment, a  new  Wicker  Furniture  Department  has  been  opened 
on  the  third  floor,  and  the  colorful  Spring  creations  in  our  Millinery 
Department   arc   drawing   crowds   every   day.     In   fact   the   whole 


A\ 


It, 


n 

M 


408 


NEW   COLLECTION   METHODS 


building,  from  Basement  Store  to  Roof  Garden,  is  full  of  interest 
and  inspiration. 

Your  charge  account  is  still  open,  and  this  is  a  special  invitation 
to  make  use  of  it  at  your  earhest  opportunity. 

At  your  service. 

The  second  letter  to  customer  in  arrears: 

Dear  Madam:  C"^""  Department 

You  have  not  been  using  your  charge  account  lately  and  we 
are  wondering  why.  We  are  deeply  concerned  to  know  if  it  is  the 
store's  fault.  If  so,  we  want  to  correct  it  at  once.  We  have  greatly 
appreciated  your  patronage  and  any  failure  in  courteous  attention, 
good  service,  or  hospitality  on  our  part  would  be  a  matter  of  deep 
regret  to  us. 

We  urge  you  to  tell  us  if  we  have  failed  in  any  instance  to 
give  you  satisfaction. 

The  store  has  now  put  on  its  summer  dress  and  is  bright  and 
fresh  with  new  apparel  for  home  wear  or  the  outing  trip. 

We  have  never  had  more  carefully  selected  or  more  abundant 
stocks,  nor  any  that  more  nearly  filled  our  desire  to  combine  right 
style  and  right  quality  with  right  price. 

We  are  sure  you  will  like  these  summer  things  and  hope  that 
you  will  soon  find  occasion  to  use  your  charge  account  again. 

Yours  truly. 

Collection  Procedure  of  a  Department  Store 

For  the  following  account  of  a  useful  collection  procedure 
for  department  stores,  the  author  is  indebted  to  a  credit 
manager  of  one  of  the  large  department  stores  of  New  York 
City. 

When  an  account  is  opened  it  is  given  a  rating  which 
guides  the  clerk  in  passing  on  an  individual  purchase,  the 
bookkeeper  in  posting  it,  the  collector  in  handling  it.  At  a 
certain  time  in  each  month,  the  bookkeepers  make  out  state- 
ments on  all  accounts  which  are  unpaid  up  to  the  first  of  the 
month.  These  are  assorted  according  to  their  ratings  and  the 
statements  issued  accordingly. 

The  ratings,  which  are  in  cipher,  indicate  the  amount  of 


DEPARTMENT   STORE  COLLECTIONS 


409 


credit  allowed,  as  for  instance,  a  professional  man  on  a  salary 
of  a  certain  amount  might  be  allowed  fifty  dollars  a  month. 
If  a  customer's  purchases  exceed  his  rating,  the  bookkeeper 
notes  this  on  his  daily  report  sheet  sent  to  the  credit  office. 
The  store  frequently  discovers  just  grounds  for  changing  the 
credit  rating,  and  does  so.  The  statement  as  issued  con- 
tains the  sentence:  "Terms:  Goods  are  sold  at  cash  rates  and 
payment  required  early  part  of  following  month."  A  stub 
attached  to  the  statement  and  filled  out  at  the  same  time  is  re- 
tained by  the  store.  This  shows,  in  addition  to  the  record 
of  amount  owing  for  merchandise  delivered,  the  customer's 
habits  of  payment,  the  month,  the  date  paid,  the  ledger,  the 
folio,  the  rating,  and  its  number  as  a  new  account.  These 
stubs  are  assorted  according  to  the  ledger  and,  if  the  bill  is 
not  paid  promptly,  the  name  and  address  are  filled  in,  so  that 
it  will  serve  as  a  collection  memorandum. 

According  to  the  proportion  between  the  customer's  rating 
and  the  size  of  purchases,  the  stub  may  be  advanced  ten  days 
in  the  file  to  wait  for  the  customer's  remittance  or  the  adjust- 
ment of  the  account,  or  some  other  step  in  the  procedure  may 
be  taken  at  once.  Whenever  a  collection  letter  is  written  the 
carbon  copy  goes  to  the  bookkeeper  during  the  last  hour  of 
the  day  to  make  sure  that  payment  has  not  come  in,  and  if 
there  is  any  difference  as  to  the  amount  due,  or  any  com- 
plaint (the  adjustment  bureau  always  makes  notation  in 
ledger  at  time  of  receiving  complaint)  the  bookkeeper  notes 
this  on  the  face  of  the  carbon  copy  of  the  letters  to  the  cus- 
tomer. The  various  statements  or  letters  sent,  or  visits  of 
collectors,  are  noted  together  with  their  date  on  the  ledger. 
No  action  is  taken  without  reference  to  this.  The  specially 
slow  accounts  will  be  sent  down  to  the  credit  office  by  the  col- 
lection office  and  stronger  letters  are  written,  or  a  special 
collector  sent  out,  until  finally  the  statement  is  made  that  the 
account  is  in  shape  to  be  turned  over  to  the  legal  office,  (of 


1! 


■I'    I 


1: 

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5 


410 


NEW   COLLECTION   METHODS 


1^ 


course  the  customer  is  always  notified  that  this  will  be  done) 
as  the  store  is  reluctant  to  do  this. 

Soliciting  Charge  Accounts 

In  their  eagerness  to  secure  and  hold  new  customers  some 
large  stores  are  in  the  Tiabit  of  soliciting  charge  accounts.  The 
following  letter,  for  example,  was  issued  by  a  well-known 
department  store  to  a  selected  list  of  residents  in  the  suburbs 
of  New  York  City,  saying  that  a  charge  account  had  been 
opened  in  their  name.  In  making  up  this  list  great  care  was 
exercised  to  place  on  it  only  those  whose  credit  was  known 
to  be  first  class  through  their  dealings  with  other  stores  in  the 
city. 

Letter  announcing  charge  account i 

Dear  Madam: 

For  your  convenience  we  have  opened  a  charge  account  on 
our  books  under  your  name. 

There  is  no  further  formality  to  consider,  and  your  orders  will 
be  filled  promptly,  without  delay  of  any  sort. 

If  you  have  "shopped"  carefully  enough  to  pass  judgment  on 
the  prices  of  such  items  as  those  on  the  enclosed  leaflet,  you  will 
quickly  verify  our  Extremely  Conservative  claim  that  "you  never 
pay  more  at  Barton's."  (We  prefer  to  say  it  that  way  usually,  but 
if  you  have  compared  prices  in  the  leading  New  York  stores  you  will 
know  how  much  more  it  really  means.) 

We  shall  welcome  our  first  "charge"  order  from  you— and  pos- 
sibly the  enclosure  may  suggest  to  you  the  very  thing.  If  it  does, 
you  might  put  our  store  service  to  an  immediate  test  by  asking  Cen- 
tral to  give  you  Chelsea  456,  and  order  what  you  wish— or  a  postal 
card  or  letter  will  be  just  as  effective.  We  deliver  to  your  home 
free. 

Promptness,  accuracy,  and  courtesy  are  part  of  our  promise— 
and  complete  satisfaction  with  your  purchases  is  the  rest  of  it. 

Yours  truly. 

Overselling  Means  Hard  Collections 

Whenever  special  effort  is  made  to  solicit  charge  accounts, 
credit  risks  must  be  looked  up  with  unusual  care  and  the  col- 


DEPARTMENT  STORE  COLLECTIONS 


411 


lection  man  must  watch  very  keenly  the  accounts  secured  in 
this  fashion.  The  temptation  to  overbuy  is  almost  irresistible 
when  one  carries  accounts  at  a  large  number  of  stores.  Also, 
when  an  account  is  opened  without  a  credit  interview,  the  store 
has  lost  its  opportunity  to  "sell  credit,"  and  indirectly  to  im- 
press the  customer's  obligation  on  her  mind.  It  is  a  method 
attended  with  unusual  credit  risk  because  it  makes  impossible 
some  of  the  ordinary  credit  precautions.  Consequently,  if 
adopted,  it  throws  additional  burdens  on  the  collection  man 
and  makes  it  more  advisable  that  in  the  early  stages  of  col- 
lection he  sell  credit  by  means  of  printed  remarks  on  vouchers 
and  statements,  special  stickers  pasted  on  them,  etc.  He  may 
also  suggest  some  of  the  points  bearing  on  the  value  of  credits 
in  any  early  letters  he  may  write. 


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CHAPTER   XXXVIII 

COLLECTION  OF  PROFESSIONAL  ACCOUNTS 

The  Collector's  Function 

The  subject  of  professional  accounts  interests  not  only 
doctors  and  lawyers  but  also  collectors,  since  no  inconsiderable 
share  of  the  collector's  work  lies  in  following  up  accounts 
which  for  various  reasons  the  professional  man  does  not  care 
to  press  himself.  The  interests  of  the  professional  man, 
moreover,  extend  to  the  work  of  the  collector  as  well,  for  if 
the  latter  does  his  work  crudely  he  may  alienate  clients  who 
should  be  retained ;  while  if  he  does  his  work  without  sufficient 
vigor  the  professional  man  will  lose  the  money  due  him. 

A  Serious  Matter  to  the  Doctor 

Since  the  collection  of  medical  accounts  presents  a 
problem  of  unusual  interest  and  difficulty  it  will  be  discussed 
first  in  this  chapter,  leaving  the  discussion  of  legal  accounts 
until  later. 

The  question  of  getting  the  money  which  is  due  him  for 
services  rendered  is  a  very  serious  matter  for  the  doctor. 
Harsh  and  exacting  methods  of  collection  will  drive  away  the 
patronage  which  he  has  laboriously  built  up.  His  success 
is  entirely  dependent  upon  the  long-continued  patronage  of 
families  and  individuals,  who  would  not  think  of  calling  in 
anyone  save  him.  If  after  a  single  call  on  a  patient  he  should 
have  a  disagreement  which  resulted  in  his  making  no  further 
visits,  the  doctor's  practice  would  be  ruined  as  soon  as  it 
was  begim. 

On  the  other  hand,  his  inability  to  obtain  the  money  due 

412 


COLLECTION  OF  PROFESSIONAL  ACCOUNTS         413 

him  is  often  a  prime  cause  of  his  failure.  The  failure  may 
be  complete,  obliging  him  to  give  up  his  practice  and  to  start 
over  again  in  another  location ;  or  it  may  be  only  partial,  pre- 
venting his  entire  success.  It  may  be  a  failure  to  get  needed 
equipment,  certain  appliances  which  will  enable  him  to  keep 
up  with  his  profession,  and  to  give  his  patients  the  modem 
service  which  is  their  due.  He  may  be  unable  to  make  needed 
alterations  or  improvements  in  his  office  equipment  and 
furniture,  with  the  result  that  he  fails  to  give  his  patients 
the  added  comfort  and  conveniences  which  would  increase  the 
pleasure  they  derive  from  his  services.  Perhaps  he  needs  a 
new  car  to  enable  him  to  make  his  visits  with  speed  and  with 
the  certainty  of  not  being  detained  by  breakdowns.  Quite 
possibly  he  ought  to  have  a  longer  vacation  so  that  he  can 
come  back  to  his  work  with  renewed  vigor,  after  a  rest;  or 
he  may  wish  to  put  in  some  weeks  or  months  of  possible  study, 
that  will  equip  him  for  greater  usefulness  in  the  future.  In 
all  of  these  matters  his  patrons,  as  well  as  the  physician  him- 
self, have  a  strong  indirect  interest.  The  various  additions 
which  could  be  made  to  his  efficiency  if  he  were  able  to  collect 
the  money  due  him  would  render  him  of  greater  value  to  his 
patients  and  would  increase  his  influence  for  good  over  them 
and  in  the  community. 

Moreover  the  doctor  should  consider  the  needs  of  his 
family.  He  may  have  children  requiring  an  education,  who 
have  a  right  besides  to  the  proper  standing  in  the  com- 
munity which  a  satisfactory  income  can  bring.  Notwith- 
standing, it  is  a  notorious  fact  that  the  majority  of  doctors 
have  accounts  on  their  books  which  from  an  ordinary  business 
point  of  view  can  be  collected,  but  which  are  not  collected. 

The  Difficulty  of  the  Doctor's  Case 

There  are  many  factors  peculiar  to  the  doctor's  collection 
situation.    First,  he  is  a  professional  man  and  not  a  business 


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NEW   COLLECTION    METHODS 


man,  and  is  hedged  about  with  a  peculiar  etiquette  which 
prevents  him  from  employing  precisely  the  collection  methods 
of  the  business  man.    Sometimes  he  interprets  it  as  debarring 
him  from  employing  any  real  collection  methods  whatever. 
Second,  his  relation  with  his  customers  is  a  personal  one; 
consequently  he  feels  delicate  about  approaching  them  directly 
for  payment.     Third,  he  is  selling  service,  not  a  tangible  com- 
modity,   but    one    which    different    people    may    interpret 
variously.    Three  or  four  months  after  they  have  been  cured, 
their  estimate  of  the  service  they  have  received  is  likely  to 
be  pretty  low.    Fourth,  it  is  impossible  for  the  doctor  to  make 
credits;  he  cannot  choose  for  his  customers  only  those  who 
are  good  credit  risks,  but  is  obliged  professionally  to  render 
his  services  to  everyone  who  is  in  need  of  them.    While  this 
increases  the  difficulty  of  making  collections  it  may  be  said 
in  passing  that  the  position  is  not  without  its  strength  as  well 
as  weakness.    Fifth,  the  doctor  is  himself  not  without  blame; 
he  is  typically  unbusinesslike.     Oftentimes  his  records  are 
poor,  his  system  is  irregular  to  the  last  degree  and  his  pro- 
cedure is  limited  to  issuing  statements  with  an  occasional 
"please  remit"  stamped  across  the  bottom.     Sixth,  he  deals 
with    "unbusinesslike    people."      When    this    statement    is 
analyzed  it  will  be  found  to  mean  merely  that  he  deals  with 
people  who  in  the  first  place  have  not  been  educated  to  an 
understanding  of  the  credit  obligation,  and  in  the  second  place 
have  no  sense  of  self-interest  in  paying  but  only  a  sense  of 
obligation.    The  retail  purchaser  pays  in  order  to  escape  the 
annoyance  of  being  dunned,  and  in  order  not  to  have  his 
credit  with  the  merchant  cut  off.    The  merchant  in  turn  pays 
in  order  to  be  able  to  secure  from  his  creditors  more  goods 
with   which   to  continue   in   business.      But   the   physician*s 
patient  does  not  realize  that  in  precisely  the  same  way  he 
must  pay  the  physician  in  order  to  obtain  his  services  again 
in  time  of  need.    Nevertheless  this  is  the  case.     Seventh  and 


COLLECTION  OF  PROFESSIONAL  ACCOUNTS 


415 


last,  the  doctor  is  fighting  an  adverse  tradition.  People  are 
accustomed  to  postpone  payment  with  the  half -apologetic 
defense,  "Well,  a  man  must  live,  you  know,"  or  "Perhaps  I 
can  spare  you  $10."  They  treat  him  oftentimes  as  if  he  were 
asking  for  charity  instead  of  for  money  which  rightfully 
belongs  to  him.  The  butcher,  the  baker,  the  candlestick- 
maker  all  get  their  money  before  the  doctor.  Such  a  tradition 
endangers  the  entire  usefulness  of  the  medical  profession  by 
casting  it  into  disrepute  and  lowering  its  dignity.  The 
physician  who  combats  it  is  serving  his  brother  physicians, 
and  his  community  as  well. 

Another  factor  which  should  be  estimated  in  this  con- 
nection, though  not  peculiar  to  medical  accounts,  is  that  the 
bill  is  sometimes  for  a  lump  sum  of  considerable  size  which 
the  recipient  is  unable  to  settle  at  once  in  full. 

The  Strength  of  the  Doctor's  Case 

The  standards  of  the  medical  profession  are  an  excellent 
reason  why  the  doctor's  methods  of  collection  should  not 
sink  below  the  standards  of  business,  either  by  a  slipshod 
irregularity  or  by  an  unintelligent  harshness.  The  first  is  all 
too  often  the  case  when  the  doctor  handles  his  own  collec- 
tions; the  second  may  be  the  case  if  the  collector  the  doctor 
employs  has  not  received  special  instruction.  The  delicacy 
of  his  personal  relation  with  his  patient  makes  some  difficul- 
ties, it  is  true,  but  it  gives  added  weight  to  even  the  most 
guarded  suggestion  from  him,  and  is  perfectly  capable  of 
being  utilized  with  courtesy  and  tact  as  a  powerful  means  of 
securing  payment.  As  to  the  intangible  nature  of  the  service 
which  he  is  selling,  a  skilful  suggestion  by  way  of  resale  can 
bring  these  services  vividly  before  the  memory  of  even  the 
most  stubborn  delinquent,  so  as  to  make  him  realize  the  worth 
of  the  value  he  has  received  and  to  make  him  willing  to  pay. 

While  the  doctor  cannot  make  credits,  he  can  adapt  his 


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NEW   COLLECTION   METHODS 


collection  methods  to  his  different  classes  of  customers  m 
such  a  way  that  they  ^'classify  themselves."  The  reasonable 
people  respond  to  reasonable  methods,  and  those  who  have 
finally  shown  themselves  unreasonable  are  turned  over  to  the 

outside  collector. 

Has  the  typically  unbusinesslike  character  of  the  relations 
between  the  doctor  and  his  customers  any  element  of  strength? 
Yes— for  when  businesslike  methods  are  once  adopted,  the 
contrast  with  the  usual  methods  attracts  the  debtor's  atten- 
tion and  interest  and  arouses  his  respect.  This  has  been  proved 
in  numberless  cases,  not  only  by  physicians  who  have  re- 
formed their  methods  but  by  retailers  and  wholesalers  also. 
The  adverse  tradition  can  be  overcome  by  meeting  it  squarely 
with  a  campaign  of  education,  preferably  through  the  resolute 
and  united  efforts  of  all  the  physicians  in  the  locality.  The 
difficulty  of  the  lump  sum  is  easily  overcome  by  making  a 
definite  arrangement,  when  necessary,  for  instalment  payment. 

The  doctor's  case  has  a  legal  strength  also  in  that  no  jury 
would  refuse  to  accept  his  own  statement  of  the  worth  of 
the  services  for  which  he  is  asking  payment.  This  is  offset, 
however,  by  the  fact  that  no  doctor  would  care  to  sue  except 
in  an  aggravated  case,  as  the  ill  will  which  it  would  bring 
him  would  be  far  more  costly  than  the  loss  of  money  involved. 

The  Need  of  Resale 

The  application  of  resale  policies  provides  an  excellent 
solution  for  the  difficulties  of  professional  collection.  The 
reader  should  go  over  carefully  Chapters  IV,  V,  and  VII- 
XIII  in  this  connection.  He  should  also  study  Chapters  XV 
to  XVII,  inclusive,  on  the  psychology  of  collection.  All 
of  this  material  is  as  applicable  to  professional  collections  as 
to  mercantile  collections. 

Resale  provides  the  doctor  with  logical  and  practical 
material  for  collection  letters.    It  saves  him  entirely  from  an 


COLLECTION  OF  PROFESSIONAL  ACCOUNTS         417 

unreasoning  harshness.  It  educates  the  community  to  realize 
the  worth  of  such  professional  services  and  so  builds  solidly 
for  the  future.    It  makes  good-will  and  increases  respect. 

Adopting  Business  Methods 

The  doctor  may  handle  his  collections  himself  either  by 
letter  or  by  personal  call ;  he  may  employ  his  reception-room 
girl  under  the  title  of  secretary  to  handle  most  of  them;  or 
he  may  at  times  use  a  collector.  The  suggestions  for  pro- 
cedure which  follow  in  a  later  section  assume  the  careful 
preparation  of  letters  by  the  doctor,  to  be  typed  and  signed 
by  his  secretary.  One  or  more  letters  may  be  personally 
signed,  and  in  later  stages  a  collector  may  be  employed,  to 
whom  careful  instruction  has  been  given.  Since  these  sugges- 
tions imply  the  doctor's  personal  control  of  his  collections, 
it  will  be  advisable,  in  order  to  surround  them  with  the  proper 
safeguards,  for  him  to  stop  and  think  for  a  moment  of  the 
psychology  of  the  person  from  whom  his  money  is  due,  and 
first  of  the  state  of  mind  of  that  person  at  the  time  when  his 
services  were  engaged. 

Psychology  at  Time  of  "Sale" 

The  psychology  of  the  doctor's  patient  at  a  time  when  his 
services  were  engaged  depends  on  many  circumstances.  These 
may  be  one  thing  in  the  case  of  a  doctor  in  a  small  town  or  in 
the  country,  and  quite  another  in  the  case  of  a  city  physician 
or  surgeon  with  a  practice  among  persons  of  wealth.  The 
patient's  need  may  be  that  of  a  father  whose  child  is  fighting 
for  life  against  disease,  or  that  of  a  woman  who  visits  the 
physician  for  an  ailment  that  has  infected  her  imagination 
but  nothing  else.  Nevertheless  in  every  case  a  need  existed. 
More  than  this ;  the  need  was  so  imperative  that  it  is  recog- 
nized as  paramount  by  the  standards  of  the  profession.  A 
doctor  is  forbidden  to  refuse  his  services;  this  single  fact 


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NEW   COLLECTION   METHODS 


indicates  the  basis  on  which  our  estimate  of  the  worth  of 
his  service  depends.  This  need  will  exist  in  the  future  with 
the  same  patient  who  will  require  at  recurring  intervals 
similar  service  in  cases  of  more  or  less  vital  necessity. 

Let  us  suppose  for  a  moment  that  it  was  according  to 
professional  etiquette  for  the  physician,  like  the  lawyer,  to 
demand  cash  in  advance  or  a  retaining  fee.  This  would  be 
given  by  the  patient  without  the  smallest  hesitation,  so  over- 
whelming would  be  his  sense  of  the  worth  of  what  he  was 
seeking. 

In  the  collection  process,  accordingly,  which  is  simply 
resale,  something  can  be  done  to  awaken  by  suggestion  the 
state  of  mind  which  existed  at  the  time  when  the  services 
of  the  doctor  were  required. 

The  Force  of  Habit 

Throughout  his  collection  procedure  the  physician  should 
take  a  position  of  strength  and  not  of  weakness.  He  should 
use  appeals  which  would  imply  the  customer's  own  advantage 
in  prompt  payment,  and  appeals  to  such  positive  emotions  as 
good- will,  fair  play,  and  the  sense  of  honor,  rather  than 
appeals  to  the  sense  of  pity.     (See  page  174.) 

Good  Records 

The  foundation  of  collection  system  for  a  physician,  as 
w^ell  as  for  a  business  man,  is  good  records.  Notes  of  office 
calls  can  be  taken  down  by  the  assistant,  while  notes  of  home 
calls  made  by  the  doctor  can  be  taken  down  by  him  in  a 
memorandum  book  and  turned  over  to  be  copied  by  his 
assistant  at  the  end  of  the  day.  Every  physician  knows  how 
records  of  this  sort  should  be  kept,  but  frequently  in  the  rush 
of  professional  duties  these  items  are  overlooked  because 
their  importance  is  not  realized. 

These  cards  can  be  kept  alphabetically  in  the  simplest  sort 


COLLECTION  OF  PROFESSIONAL  ACCOUNTS 


419 


of  filing  box  obtained  from  any  local  stationer,  and  gone 
through  once  a  month. 

It  is  contrary  to  the  standards  of  the  profession  to  treat 
all  customers  alike.  The  doctor  is  well  aware  that  some  of 
his  patients  will  never  be  able  to  pay,  and  he  either  bills  them 
for  a  nominal  sum,  or  perhaps  never  even  sends  them  a  bill. 
These  facts  should  be  noted  on  the  record  card.  Others 
among  his  patients  will  be  so  well  known  to  him  personally 
and  so  sensitive  to  their  credit  obligation,  that  the  doctor,  like 
the  business  man,  treats  them  as  Class  A  customers,  and  never 
sends  them  anything  but  simple  statements.  This  fact  also 
should  be  noted  on  the  record  card.  Some  people  will  be  of 
sensitive  honor,  but  financially  unable  to  pay  the  entire  bill 
on  presentation.  To  these  people  the  doctor  will  probably 
say  on  the  occasion  of  making  his  last  visit,  "Now  my  secre- 
tary will  be  sending  you  my  bill  as  usual,  but  if  you  don't  find 
it  convenient  to  let  me  have  it  all  at  once,  you  can  make  a 
payment  when  you  get  the  bill,  and  another  on  the  first  of 
the  next  month."  In  still  other  cases,  he  will  probably  tell 
the  patient  not  to  worry  about  it,  but  to  pay  him  when  he  can. 

It  is  to  be  supposed,  however,  that  the  majority  of  people 
will  receive  a  prompt  and  regular  series  of  statements  and 
collection  letters.  It  is  fundamental  that  this  shall  be  the  case 
if  the  profession  is  to  occupy  its  rightful  plane  of  service  in 
the  mind  of  the  community.  The  doctor  will  classify  his 
customers  further  as  he  knows  them  or  does  not  know  them, 
and  according  as  his  knowledge  indicates  that  they  are  good 
or  poor  credit  risks.  In  a  city,  for  example,  the  doctor  may 
give  services  to  someone  totally  unknown  to  him,  who  is 
likely  to  change  his  residence  at  any  moment.  Such  persons 
should  receive  a  statement  at  once  after  the  call  has  been 
made,  and  should  be  followed  up  promptly,  though  with  entire 
courtesy.  It  may  be  desirable  in  such  cases,  especially  where 
the  patient  has  made  only  one  or  two  office  calls,  to  note  on 


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NEW   COLLECTION   METHODS 


his  record  card  that  the  collection  follow-up  shall  be  put  on  a 
two  weeks'  schedule  instead  of  a  month's  schedule. 

Promptness  and  Regularity 

It  is  only  fair  to  the  patient  to  issue  statements  promptly 
and  regularly.  Any  business  man  and  any  householder  knows 
that  it  is  a  practical  service  to  be  reminded  at  the  end  of  each 
month  just  what  are  one's  outstanding  obligations.  It  is  a 
fundamental  principle  of  collections  that  no  one  objects  to 
being  reminded  promptly  and  regularly  of  the  money  one 
owes,  provided  this  is  done  with  courtesy.  Bills  should  be 
rendered  at  the  end  of  each  month ;  to  wait  for  three  months 
or  a  longer  period  allows  the  patient  to  forget  all  about  the 
obligation  incurred,  and  moreover  allows  the  benefit  of  the 
service  to  fade  from  his  mind.  When  he  is  well  again — or 
when  his  troubles  have  returned — the  mental  image  of  benefits 
received  is  less  vivid,  and  it  is  harder  for  him  to  pay.  There 
is  nothing  of  pressure  or  urgency  implied  in  the  sending  of 
regular  statements ;  if  the  doctor  desires  he  can  print  at  the 
head  of  the  sheet,  "Memorandum  of  Services  Rendered." 

Letter  with  First  Statement 

A  brief  courteous  note  like  the  following  may  accompany 
the  first  statement: 

Dear  Sir: 

In  accordance  with  his  usual  practice,  Dr.  Eversly  has  directed 
me  to  send  you  the  enclosed  statement  of  services  rendered  during 
the  month  of  March. 

At  your  convenience  kindly  draw  a  check  in  favor  of  Paul 
Eversly  and  return  it  with  this  statement  addressed  to  Miss  Evelyn 
Langwell,  349  Locust  Avenue. 

Sincerely  yours, 

Evelyn  Langwell, 

Secretary  to  Dr.  Eversly. 

The  apparent  reason  for  this  note  is  to  give  directions  for 
sending  this  note  to  the  doctor's  secretary,  so  that  it  will  not 


COLLECTION  OF  PROFESSIONAL  ACCOUNTS 


421 


be  confused  with  his  personal  mail.  Actually  it  also  serves 
as  a  courteous  suggestion  for  immediate  action.  The  recipient 
sends  in  his  check  at  once,  without  being  aware  that  he  has 
received  a  "collection  letter."  It  is  a  wonderfully  successful 
method  for  securing  prompt  payment  from  those  who  are 
able  to  pay,  but  are  likely  to  postpone  the  settlement  of 
"doctor's  bills"  until  every  other  demand  of  necessity  or 
extravagance  has  been  satisfied.  The  businesslike  directions 
of  this  note  suggest  businesslike  payment. 

Second  Statement 

The  second  statement  to  a  "good  credit  risk"  will  have 
nothing  stamped  or  printed  on  it,  but  if  sent  to  a  person  whom 
for  any  reason  the  doctor  thinks  it  necessary  to  follow  up 
fairly  closely,  it  may  be  marked  with  a  rubber  stamp,  with 
a  printed  sticker,  or  with  the  words  in  ink,  "Your  check  in 
payment  of  this  statement  will  be  appreciated";  or,  "is  re- 
spectfully requested." 

The  Third  Statement 

The  third  statement  to  a  good  risk,  now  that  the  account 
is  sixty  days  overdue,  may  well  contain  a  message  as  indicated 
in  the  preceding  section.  Action  taken  at  this  point  will,  of 
course,  depend  on  the  nature  of  the  physician's  practice.  In 
a  large  city,  he  is  likely  to  follow  up  his  accounts  promptly. 
His  expenses  are  heavy,  and  his  customers  are  able  to  pay. 
He  has  no  right  to  be  oversensitive  about  following  a  regular 
procedure,  provided  he  does  it  courteously.  If  the  customer 
cannot  pay,  he  will  be  given  a  chance  to  say  so. 

The  Time  for  Resale 

Unless  the  doctor  has  come  to  an  arrangement  with  his 
patient  by  this  time,  he  ought  to  realize  that  the  crisis  of  the 


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NEW   COLLECTION   METHODS 


account  has  probably  been  reached,  and  that  it  is  time  for 
resale  methods.  A  highly  successful  yet  courteous  method  is 
to  attach  to  his  third  statement  a  printed  sticker  reading,  "The 
physician's  moderate  charge  is  made  for  the  most  valuable 
service  you  can  receive.  Will  you  not  send  your  check  in 
payment?  It  will  be  appreciated."  This  may  also  be  im- 
printed with  a  rubber  stamp.  It  should  not  be  written  in  ink, 
as  it  is  a  general,  impersonal  statement  of  educational 
character,  and  will  have  better  effect  if  printed  than  if  given 
the  "personal  touch"  of  handwriting. 

Another  statement  possible  at  this  time  is  "This  is  a 
third  request  for  payment.  Will  you  not  send  your  check 
promptly?"  Or  the  secretary  may  write  with  a  pen  "Will  you 
not  let  me  have  check  in  settlement  of  this  account?"  and 
sign  the  doctor's  initials.  The  question  is  at  once  more  pointed 
and  more  courteous  than  any  other  form  of  sentence. 

The  Fourth  Request 

When  the  account  is  ninety  days  overdue  it  has  reached 
the  "stage  of  discussion"  (see  Chapter  XIX).  It  must  not 
be  allowed  to  drift  along  without  an  attempt  to  secure  a 
response  from  the  customer.  The  following  letter  is  useful 
for  this  purpose: 

Dear  Sir: 

Dr.  Eversly  directs  me  to  say  that  if  for  any  reason  settlement 
in  full  for  his  services  rendered  is  inconvenient  now,  he  would  much 
appreciate  a  letter  from  you  or  a  personal  call  arranging  for  pay- 
ment at  your  convenience. 

Respectfully   yours, 

Evelyn  Lang  well. 

Secretary  to  Dr.  Eversly. 

Fifth  Request 

The  account  should  now  be  put  on  a  two  weeks*  follow- 
up.     Many  physicians  would  consider  it  advisable  to  wait 


COLLECTION  OF  PROFESSIONAL  ACCOUNTS 


423 


only  three  days  after  the  foregoing  letter  and  then  either  to 
call  the  patient  by  telephone  or  to  send  a  letter  personally 
signed  by  the  doctor,  like  the  following: 

Dear  Sir: 

My  secretary  tells  me  that  for  some  reason  which  is  not  clear 
to  her  she  has  not  been  able  to  secure  a  reply  to  her  various  letters 
regarding  my  services  for  the  month  of  March. 

I  am  sure  if  there  is  any  misunderstanding  between  us  it  can 
be  removed  by  a  moment's  conversation,  and  certainly  I  am  unwill- 
ing to  let  a  cause  of  trouble  grow  up  between  us  which  can  be  so 
easily  prevented. 

Will  you  please  call  me  up  when  you  get  this  note  and  make 
an  appointment  to  come  and  see  me? 

Yours  very  truly, 

This  letter  takes  a  very  friendly  ground  and  assumes  some 
personal  misunderstanding  as  the  basis  for  non-payment. 
When  the  debtor  calls  up,  in  nine  cases  out  of  ten,  he  will 
say,  "No,  there  is  nothing  between  us,  but  you  know  how  it 
is — a  man  has  to  live.  There  are  all  my  other  bills  to  pay." 
The  doctor  must  be  careful  not  to  get  into  an  argument;  it 
would  be  easy  to  point  out  that  the  debtor^s  other  bills  have 
not  run  for  so  long  a  time,  but  to  begin  such  a  conversation 
would  not  produce  the  money  and  it  might  easily  lose  the 
customer. 

"All  right,"  he  answers,  "I  certainly  am  relieved  that  Miss 
Langwell  misunderstood  the  situation.  Then  won't  you  please 
write  me  out  a  check  for  ten  dollars" — suiting  the  amount  to 
the  size  of  the  total  indebtedness  and  to  his  knowledge  of 
the  customer's  situation — "and  Miss  Langwell  will  send  you 
a  reminder  for  that  amount  every  two  weeks  until  we  get  it 
cleared  up.  That  will  take  care  of  it  without  embarrassing 
you  and  it  will  get  the  thing  off  our  minds." 

If  the  debtor  comes  in  instead  of  calling  up  by  telephone, 
he  will  probably  bring  the  money.  If  not,  a  conversation 
similar  to  the  one  above  can  be  held.    Above  all,  the  conversa- 


424  N^^   COLLECTION   METHODS 

tion  must  be  short  and  definite.  The  doctor's  manner  assumes 
that  the  patient  is  fully  willing  to  pay,  and  now  the  difficulties 
are  removed,  for  he  will,  of  course,  accept  the  very  liberal 
arrangement.  This  manner  will  shame  the  customer  into 
accepting  the  terms  offered.  Then  the  doctor  can  either 
change  the  subject  or  can  arrange  to  have  the  secretary  call 
him  out,  so  as  to  break  off  the  conversation. 

Further  Steps 

The  foregoing  methods,  as  every  physician  will  recognize, 
will  collect  almost  every  collectible  account  or  provide  an 
arrangement  for  payment.  But  if  efforts  to  secure  an  inter- 
view fail,  the  doctor  may  turn  the  account  over  to  a  collector 
either  with  or  without  previous  warning,  or  he  may  prefer 
to  send  out  another  letter  making  some  appeals  to  fair  play, 
good- will,  etc.,  as  discussed  in  Chapter  XVI. 

If  these  fail  and  if  the  patient  is  one  whose  good-will  he 
wishes  to  retain,  he  should  write  a  letter  definitely  reselling 
his  services.  Let  him  remember  that  unless  he  does  so,  his 
patient  is  lost  to  him  forever,  for  it  is  an  axiom  in  collection 
that  no  one  will  trade  where  he  owes  a  bill. 

Consider  too  how  this  fact  affects  his  ability  and  his  duty 
to  serve  the  community.  Through  no  fault  of  his  own  a 
barrier  has  been  raised  to  prevent  this  person's  calling  him 
in  at  a  time  of  need.  Like  the  wise  and  skilful  credit  man 
in  a  mercantile  house  he  realizes  that  this  may  injure  his 
customer  much  more  than  it  does  himself.  A  letter  like  the 
following  will  produce  the  best  results. 

Dear  Mr.  Warren: 

Suppose  there  were  no  doctors  on  the  west  side  and  your  wife 
or  your  child  were  suddenly  taken  sick.  The  delay  during  those 
moments  of  terror  in  getting  someone  from  another  part  of  town, 
the  danger  to  the  safety  of  the  one  you  love,  would  be  something 
that  at  that  moment  you  would  pay  almost  anything  to  prevent. 


COLLECTION  OF  PROFESSIONAL  ACCOUNTS 


425 


But  a  doctor  cannot  live  in  Rochester  unless  the  people  pay 
him  for  his  services. 

I  certainly  do  not  want  you  to  think  that  I  am  in  the  least  unfair, 
but  when  I  looked  over  my  books  last  night  and  found  how  long  it 
was  since  you  paid  me  anything  on  account,  I  came  to  the  conclu- 
sion that  I  would  just  say  this  word  to  you  in  belief  that  you  had 
not  thought  of  the  matter  in  quite  this  fashion. 

Won't  you  send  me  a  check  for,  say,  ten  dollars,  or  at  any  rate 
stop  in  and  see  me  tomorrow  as  you  come  down  town?  I  shall  be 
here  between  three  and  five.  Or  if  I  should  be  called  out  to  relieve 
someone  who  may  be  as  badly  off  as  your  wife  was  last  winter,  my 
secretary  will  be  here  and  will  very  gladly  take  your  check.  She 
does  not  know  that  I  am  sending  you  this  letter. 

Faithfully  yours, 


"Would  You  Hesitate  to  Call  Me?" 

Another  letter  was  written  by  a  country  physician  to  a 
well-to-do  farmer  whom  he  knew  personally.  The  man  was 
really  fond  of  this  doctor  and  would  have  gone  to  almost 
any  length  to  avoid  calling  in  another  physician.  Still  he 
owed  the  doctor  fifty  dollars  which  had  been  due  for  some 
months.  Besides  repeated  statements  he  had  been  spoken  to 
twice  about  the  account,  but  had  put  the  doctor  off  easily. 
After  thinking  the  matter  over  the  physician  sent  him  this 
letter. 

Dear  Mr.  Wilson: 

If  Jack  were  to  fall  sick  tonight  would  you  hesitate  to  call  me? 

I  don't  believe  you  would,  and  I  certainly  hope  you  wouldn't. 
But  sometimes  you  know  when  a  man  owes  a  bill  for  goods  which  is 
long  overdue,  he  hesitates  to  trade  in  the  same  place  because  that 
lack  of  payment  stands  in  the  way. 

You  know  I  would  come  to  your  family  and  give  Lhem  the  best 
service  in  my  power  as  a  matter  of  friendship  whether  you  ever  paid 
me  a  cent  or  not,  and  I  am  going  to  believe  that  you  and  I  are  too 
good  friends  for  you  to  take  offense  at  my  very  frank  letter,  which 
is  written  only  because  I  sincerely  believe  that  you  had  never  thought 
of  the  matter  in  just  this  way.  If  I  am  right,  won't  you  send  me  a 
check  for  a  part  of  the  amount  you  owe  me?  If  I  am  wrong,  come 
in  tomorrow  and  have  it  out  with  me  and  I  will  apologize. 

Sincerely  yours. 


4 


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i 


426 


NEW   COLLECTION    METHODS 


COLLECTION  OF  PROFESSIONAL  ACCOUNTS 


427 


Using  the  Collector 

When  an  account  is  turned  over  to  the  collector,  the 
doctor  should  instruct  him  to  use  resale  methods,  similar  to 
those  represented  in  the  preceding  sections,  before  trying  any 
appeals  to  fear  or  shame.  The  collector  should  also  use 
vigorous,  friendly  questions  asking  an  explanation.  It  is  his 
task  to  work  for  a  reply  or  an  explanation  that  will  reinstate 
friendly  relations. 

The  Best  Time  for  Collections 

The  doctor  needs  to  think  for  a  moment  about  the  habits 
of  payment  prevailing  in  his  community  and  about  other  local 
circumstances  as  well  as  the  immediate  financial  position  of 
his    customer.      In   case   of    serious   illness   with   people   m 
moderate  circumstances  a  physician  does  not  usually  render 
his  bill  until  the  conclusion  of  his  calls,  because  the  family 
cannot  think  about  business  matters  at  that  time.     In  the 
same  way  a  personal  knowledge  of  the  patient's  state  of  mind 
or  his  pocketbook  may  help  him  in  deciding  what  steps  to 
take  and  when  to  take  them,  especially  if  he  handles  his 
accounts  personally  either  by  letter  or  by  conversation  when 
he  happens  to  meet  the  patient.     A  collector,  too,  will  time 
his  visits  to  catch  the  weekly,  biweekly,  or  monthly  pay  day. 
A  sunshiny  day  after  a  rainy  spell  finds  people  in  a  more 
optimistic  mood  and  better  able  to  remember  whether  they 
have  any  money  in  the  house  to  satisfy  the  collector. 

A  letter  addressed  to  a  business  man's  office  may  find 
him  with  his  checkbook  handy,  while  one  sent  to  his  home 
might  be  laid  aside  because  action  was  not  so  easy  at  the 
moment.  A  letter  mailed  so  as  to  reach  a  man  at  the  break- 
fast table,  on  the  other  hand,  may  get  the  attention  of  his 
wife  also  and  obtain  her  influence  in  securing  payment.  Or 
the  case  may  be  just  the  reverse,  and  evening  may  be  the 
better   time. 


Etiquette  or  Merely  Bad  Business? 

The  doctor  who  has  many  accounts  on  his  books  and  is 
unwilling  to  undertake  regular  collection  may  well  think  again 
about  the  points  made  early  in  this  chapter.  Does  profes- 
sional etiquette  really  demand  the  sacrifices  involved  in  letting 
his  accounts  slide?  Or  is  the  situation  duf  merely  to  an 
inherited  bad  practice,  capable  of  being  reformed  without 
violating  etiquette?  Will  not  reform  actually  improve  his 
ability  to  render  service  to  his  community,  especially  as  it 
can  be  undertaken  in  such  a  way  so  as  to  make  friends  instead 
of  lose  them? 

Collections  for  Legal  Services 

The  strength  of  the  lawyer's  position  in  making  collections 
is  vastly  greater  than  that  of  the  doctor,  for  several  reasons. 
First,  he  can  decline  to  accept  the  case,  which  gives  him  the 
privilege  of  making  credit.  Second,  he  usually  accepts  a  re- 
taining fee  in  advance,  which  constitutes  an  admission  by  the 
client  of  the  value  of  the  service  to  be  obtained.  Third,  his 
own  knowledge  of  the  law  entrenches  him  in  a  strong  position 
if  it  becomes  necessary  to  press  his  claim  for  payment. 

The  unfamiliar  or  intangible  nature  of  many  of  the 
lawyer's  services,  however,  may  at  times  make  his  collections 
slow  or  difficult.  His  client  may  be  inclined  to  question  the 
value  set  upon  some  of  these  items  in  the  account,  and  while 
he  does  not  raise  the  issue  openly,  he  withholds  payment  on 
this  score.  It  is  highly  important  that  the  lawyer  shall  not 
get  into  an  argument  over  these  matters,  but  is  quite  proper 
for  him  either  at  the  time  of  rendering  account  or  after  his 
early  statements  or  letters  have  gone  without  effect,  to  offer 
to  explain  any  item  which  may  not  be  clear. 

Usually  he  has  not  the  advantage  possessed  by  the 
physician  of  an  intimate  acquaintance  with  his  customer; 
neither  has  he  his  corresponding  disadvantage.     His  client  in 


> 


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428 


NEW   COLLECTION   METHODS 


I 


most  cases  will  be  less  sensitive  about  allowing  his  account 
to  drag  than  he  would  be  with  regard  to  a  similar  doctor's 
bill.  The  latter  is  more  like  money  owed  to  a  personal  friend, 
while  the  lawyer's  bill  has  a  more  strictly  business  character. 
Accordingly  the  lawyer  should  be  doubly  businesslike  in  fol- 
lowing up  his  accounts  promptly  and  regularly. 

Resale  Methods  for  Lawyers 

But  the  lawyer  is  as  much  interested  as  any  other  business 
man  in  keeping  the  practice  he  has  buih  up.     Although  the 
nature  of  his  profession  gives  him  a  thorough  knowledge  of 
harsh  collection  methods,  he  does  not  wish  to  use  them  lest 
he  alienate  good-will.     His  chief  aim  in  case  of  difficulty 
should  be  to  reach  an  arrangement  for  part  payment,  and 
this  he  can  undertake  without  hesitation  at  the  beginning 
of  his  collection  procedure  whenever  in  his  judgment  it  is 
unwise  to  ask  for  full  payment  at  once.     On  this  occasion 
it  may  be  effective  to  say,  "We  wish  to  be  in  a  position  to 
give    you    service    in   the    future    should    occasion    require. 
Accordingly  may  we  respectfully  ask  your  check  in  settle- 
ment of  the  enclosed  account?" 

All  the  collection  appeals  possible  to  the  business  man  lie 
open  to  the  lawyer's  use.  In  letters  written  under  different 
circumstances  and  to  different  types  of  clients  he  can  ring 
the  changes  on  pride,  good-will,  self-interest,  etc.,  and  adapt 
to  his  purposes  letters  that  have  succeeded  in  the  mercantile- 
field. 

He  has  unusual  advantage,  it  need  hardly  be  said,  m  press- 
ing for  settlement  in  cases  when  reasonable  methods  have 
been  without  avail.  "It  should  be  unnecessary  for  us  to  point 
out,"  he  can  say,  "that  our  knowledge  of  legal  procedure 
makes  it  quite  certain  we  shall  be  successful  in  collecting  this 
bill.  Why  should  you  add  by  your  delay  to  costs  that  eventu- 
ally you  must  pay?" 


CHAPTER   XXXIX 

WRITING    THE    LETTER 

Important  and  Difficult  Work 

The  writer  of  credit  and  collection  correspondence  has 
perhaps  a  more  difficult  task  than  the  writer  in  any  other 
department  in  the  house.  He  has  rights  which  must  be  very 
carefully  safeguarded;  he  must  make  no  false  admissions  or 
promises  which  weaken  the  case  of  his  house  against  the 
delinquent;  he  must  not  show  weakness,  or  he  wttl  arouse 
contempt,  and  cause  the  customer  to  disregard  his  corre- 
spondence; neither  must  he  show  undue  harshness,  lest  he 
arouse  anger,  create  a  stubborn,  defiant  attitude,  and  perhaps 
be  driven  to  severe  action  which  will  lose  the  customer.  In 
spite  of  these  restrictions,  his  letters  must  be  varied  enough 
to  avoid  the  deadly  monotony  which,  more  than  any  other  one 
cause,  is  responsible  for  the  failure  of  many  collection  letters 
to  get  results.  He  must  show  a  convincing  logic,  in  order  to 
demonstrate  his  mental  superiority,  and  force  the  delinquent 
to  respect  him ;  for  without  respect  he  will  be  slow  in  securing 
results.  His  tone  must  always  be  reserved  and  cautious;  he 
has  not  the  license  of  the  sales  or  advertising  writer  to  show 
enthusiasm.  In  many  cases  he  has  not  even  a  letter  to  which 
he  may  dictate  a  reply ;  he  has  not  even  new  facts  to  guide  his 
successive  letters.  His  is  an  art,  in  a  word,  which  must  be 
exercised  under  severe  limitations. 

Nevertheless,  if  the  writer  of  credit  or  collection  letters 
appreciates  the  possibilities  of  resale,  if  he  studies  the 
psychology  of  the  average  debtor,  and  if  he  familiarizes  him- 
self with  the  multitude  of  possible  appeals  and  the  variety 

429 


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::ew  collection  methods 


WRITING  THE  LETTER 


431 


n 


of  methods  and  devices  that  have  been  successfully  used  by 
others,  and  that  are  set  forth  in  various  chapters  of  this  book, 
he  will  hardly  be  conscious  of  his  limitations. 

Write  Your  Own  Letters 

It  is  the  "accent  of  reality"  which  above  all  else  the  writer 
of  collection  letters  must  cultivate.  For  this  reason  he  needs 
to  go  very  cautiously  in  using  without  alteration,  letters 
written  by  others,  for  instance,  the  letters  illustrated  in  this 
book.  The  best  practice  is  to  read  and  study  such  letters, 
weighing  their  phrasing  and  gaging  their  effectiveness  for  the 
situation  he  has  in  hand ;  then  rewriting  them  as  far  as  may 
be  necessary  in  order  to  make  them  sound  like  his  own 
language.  This  does  not  imply  that  a  collection  man  may  not 
with  profit  model  his  own  practice  on  that  of  other  successful 
men  in  his  field,  but  it  does  mean  that  he  can,  without  much 
effort,  give  to  his  own  letters  the  color  of  his  own  personality. 

The  Value  of  Form  Letters 

Form  letters  in  collections  have  great  value;  not  only  in 
saving  time  and  expense,  but  what  is  of  far  greater  im- 
portance, in  providing  a  carefully  prepared  letter  that  avoids 
the  dangers  that  beset  all  but  the  highly  skilled  writer,  and  a 
letter,  moreover,  that  is  interesting,  logical,  and  compelling. 

The  form  letter  can  be  used  in  three  ways,  as:  (i)  a 
guide  form,  (2)  a  paragraph  form,  or  (3)  a  complete  form. 

The  guide  form  is  a  letter  which  the  dictator  has  under 
his  eye  at  the  time  of  dictation,  but  which  he  remodels  and 
phrases  to  fit  the  exact  case  he  is  dealing  with,  retaining  per- 
haps only  its  logical  outline. 

The  paragraph  form  is  a  loose-leaf  book  made  up  of  para- 
graphs specially  prepared  or  taken  from  previously  dictated 
correspondence,  classified  so  that  one  or  more  pages  are  filled 
with  paragraphs  relating  to  a  given  subject,  or  fitted  for  the 


beginning,  the  middle,  or  the  end  of  the  letter.  These  are 
especially  useful  for  the  rapid  handling  of  correspondence 
after  a  reply  has  been  received  from  a  delinquent,  although 
they  are  also  very  useful  at  any  stage  of  operation.  The 
dictator  turns  the  pages  of  his  book,  determines  on  the  para- 
graphs he  desires,  and  notes  them  in  order  on  a  slip  which  is 
given  to  the  typist,  who  is  provided  with  a  copy  of  the  book 
in  which  the  paragraphs  are  contained.  She  then  types  the 
letter  and  submits  it  for  signature.  This  provides  for  individu- 
ally typed  letters,  which  have  all  the  directness  and  sincerity 
of  specially  dictated  letters.  They  have  even  greater  variety 
than  the  usual  dictated  correspondence,  which  is  apt  to  get  into 
a  rut ;  and  under  most  circumstances  they  have  greater  force. 

If  the  complete  form  has  been  printed  or  mimeographed, 
and  is  kept  in  quantity  ready  to  be  issued  on  occasion,  the 
greatest  pains  should  be  taken  to  fill  in  with  precision  the 
name  and  address  and  any  inserts;  for  the  appearance  of 
carelessness  or  of  machine  methods  tempts  the  customer  to 
be  careless  in  turn,  and  to  pay  little  attention  to  formal  and 
impersonal  requests  for  payment. 

But  the  complete  form  can  be  individually  typed,  either 
by  hand  or  by  the  automatic  typewriter.  This  permits  the 
filling  in  of  name  and  address,  the  amount  due,  the  dates  of 
previous  letters,  or  personal  references  to  the  customer's  busi- 
ness, etc.,  so  that  the  letter  presents  a  uniform  appearance. 
The  typist  is  merely  supplied  with  these  data  and  with  the 
number  of  the  form  to  be  typed.  If  the  automatic  typewriter 
is  used,  this  additional  data  should  be  run  in  at  the  end  of 
paragraphs,  so  as  to  avoid  the  difficulty  of  making  the  data 
exactly  fill  the  space  left  in  the  middle  of  a  paragraph. 

Perhaps  the  best  plan,  where  forms  are  to  be  used,  is  to 
supply  each  typist  and  each  member  of  the  credit  and  collec- 
tion staff  with  a  book  containing  a  number  of  complete  forms, 
and  a  section  devoted  to  paragraph  forms.    These  can  be  re- 


^f 


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NEW   COLLECTION   METHODS 


WRITING  THE  LETTER 


433 


»:: 


I 


vised  at  fixed  intervals,  so  as  to  prevent  the  same  letter  being 
sent  to  the  customer  twice.  Frequently  only  slight  revision 
will  be  sufficient  to  change  completely  the  character  of  the 
letter.  At  the  same  time,  one  or  more  multigraphed  forms 
may  be  used  at  the  beginning  of  the  series,  and,  if  so,  can  be 
bound  up  in  the  book.  An  outline  of  the  procedure  of  the 
department  can  be  bound  up  in  the  same  book,  thus  bringing 
all  necessary  matters  under  one  cover. 

Attention  to  "Symptomatic  Detail" 

The  chief  of  a  credit  or  collection  department  is  a  busy 
official,  with  many  important  constructive  matters  depending 
on  him.  He  realizes  that  the  most  important  part  of  his  work 
is  the  forming  of  decisions;  whether  credit  shall  be  granted 
and  in  what  amount;  whether  extensions  shall  be  allowed; 
whether  severity  shall  be  shown  or  leniency.  He  is  tempted  to 
feel  that  the  language  in  which  his  decisions  are  conveyed  is 
a  mere  matter  of  detail  which  can  be  left  to  his  subordinates 
and  he  may  even  pay  little  attention  to  securing  effectiveness 
in  the  language  of  his  own  dictated  correspondence.  True,  it 
is  poor  efficiency  for  a  superior  officer  to  be  concerned  largely 
with  detail.  Nevertheless,  there  is  a  certain  type  of  detail 
which  merits  his  attention  and  which  students  of  efficiency 
methods  dignify  by  the  term  "symptomatic  detail." 

A  superior  officer  should  at  stated  intervals  look  over  the 
carbon  copies  of  letters  issued  from  his  department;  not  in 
large  volume,  but  enough  to  give  a  cross-section  of  the  method 
employed.  If  forms  are  employed,  he  can  glance  over  thera 
and  make  suggestions  for  their  improvement,  indicating  rather 
the  lines  which  they  should  follow  than  the  exact  phrasing. 

The  Department  Manual 

This  is  readily  accomplished  through  the  department 
manual,  containing  in  outline  the  duties  of  each  member  of 


the  department,  the  procedure  and  system  for  following  up 
accounts,  and  copies  of  all  forms.  New  members  of  the 
department  should  receive  their  training  through  this  manual 
and  all  questions  of  policy  should  be  decided  by  its  aid  or 
entered  in  it,  if  not  already  to  be  found  there. 

Under  these  conditions  an  executive  may  have  under  his 
control  the  tremendously  important  matter  of  his  departmental 
correspondence  without  being  obliged  to  burden  himself  by 
unnecessary  attention  to  detail. 

The  Study  of  Examples 

One  of  the  best  ways  of  learning  to  write  letters  is  by 
reading  good  examples.  Any  letter  has  several  elements  to 
which  especial  attention  may  be  paid.  The  outline  of  its  ideas 
may  prove  suggestive ;  the  way  in  which  the  thought  advances 
from  point  to  point  and  the  logical  conclusion  is  enforced, 
may  be  the  significant  matter,  or  on  reading  the  letter  one  may 
be  struck  by  an  original  phrase  or  sentence  which  more 
than  the  rest  "rings  true."  Whatever  appeals  to  the  reader 
as  possessing  naturalness,  courtesy,  logic,  force,  interest,  or 
any  other  desirable  quality  can  be  noted  for  reference  and 
employed  on  a  later  occasion.  A  good  story  can  be  retold  in 
the  writer's  own  words  or  it  may  suggest  to  him  other  stories 
equally  good.  A  sentence  may  bring  to  his  mind  some  way 
of  saying  the  same  thing  either  more  crisply,  or  perhaps  more 
fully  and  clearly,  for  the  particular  man  he  is  writing  to. 
Often  he  will  find  a  sentence  or  paragraph  expressing  the  idea 
so  well  that  he  wants  to  employ  it  in  his  own  letters  just  as 
it  stands. 

A  study  of  examples  should  strengthen,  not  weaken,  the 
writer's  own  power  of  writing  forceful,  compelling  letters;  of 
saying  things  in  such  a  way  as  to  secure  instant  respect  and 
to  convey  just  the  shade  of  good-will  or  urgency  which  he 
desires. 


i.. 


m 


■i 


NEW   COLLECTION   METHODS 
434 

Visualize  the  Reader 

Whenever  you  sit  down  to  write  a  letter,  look  straight 
into  the  eyes  of  the  man  you  are  addressing.     Summon  him 
up  before  you  in  a  mental  picture;  remember  h.s  personal 
characteristics,  the  nature  of  his  past  relations,  his  local  busi- 
ness conditions,  and  any  facts  you  may  know  about  the  state 
of  his  personal  business.     Refer  to  the  salesman  s  report  or 
to  any  data  proceeding  from  someone  who  has  known  the  cus- 
tomer personally,  endeavoring  in  that  way  to  bridge  the  gap 
of  distance  that  separates  you  and  him,  and  to  call  up  before 
your  eyes  his  bodily  image,  seated  in  the  chair  at  the  corner 
of  your  desk.    Unconsciously  this  method  of  visualizing  your 
reader  will  shape  the  letter  you  write.    It  will  prevent  your 
language  from  getting  hackneyed,  and  will  give  it  the    accent 
of  reality"  when  it  is  read  by  your  customer. 

Jolt  yourself  out  of  your  own  point  of  view  a  moment 
and  look  at  the  matter  from  his  point  of  view.  Think  of  the 
reasons-the  real,  honest-to-goodness.  brass-tack  facts  that 
are  in  all  probability  preventing  the  payment  of  the  money 
due  you.  Remember  your  own  experiences  when  you  have 
been  a  debtor  and  found  it  inconvenient  to  pay  at  the  time  you 

were  called  on.  .       . 

Then  turn  around  and  resume  your  present   situation. 
Remember  your  rights  and  the  customer's  obligation    Remem- 
ber that  your  interests  and  his  alike  demand  prompt  payment, 
and  that  the  man  who  gives  good  advice  in  sincere  friendship 
is  doing  the  other  fellow  a  better  turn  than  the  man  who 
carries  good  nature  to  an  extreme  and  allows  the  customer 
to  eet  into  the  habit  of  believing  his  own  excuses.     It  is  a 
better  favor  to  help  your  friend  stiffen  up  his  backbone  and 
arouse  his  determination  than  to  encourage  him  to  play  the 
jellyfish.     A  good,  vigorous  dose  of  resale  doctrine  or  con- 
structive credits  may  reawaken  his  optimism  and  his  fighting 
Spirit. 


WRITING  THE  LETTER 


435 


A  careful  study  of  the  other  chapters  in  this  book, 
especially  those  on  resale,  constructive  credits,  the  psychology 
of  collections,  and  procedure  may  be  undertaken,  a  few  pages 
a  day,  while  getting  out  one's  regular  correspondence. 

What  to  Say  and  How  to  Say  It 

The  task  of  writing  the  letter  includes  not  only  finding 
hozv  to  say  the  thing,  but  also  deciding  what  to  say ;  not  only 
hitting  upon  the  right  phrases  but  also  canvassing  the  whole 
range  of  facts  which  lies  at  the  disposal  of  the  writer  of  col- 
lection letters.  He  is  apt  to  "run  dry"  and  to  rehash  the  same 
ideas  again  and  again,  unless  he  comes  in  stimulating  contact 
with  the  work  of  other  men  in  his  field.  Then  he  not  only 
learns  to  adapt  their  material,  but  finds  suggestions  in  it  for 
new  material  developed  from  the  field  of  his  own  experiences. 

Essential  Precautions 

A  few  points  should  always  be  kept  in  mind  by  the  writer 
of  collection  letters.  Determine  the  facts  of  the  case,  the 
amount  due,  the  date  when  due,  the  dates  of  previous  com- 
munications and  their  nature,  whether  any  payment  has  been 
made  up  to  the  moment  the  letter  is  mailed,  whether  any  part 
of  the  amount  is  in  dispute  or  is  being  made  the  subject  of 
a  claim,  and  just  what  is  the  basis  of  fact  behind  any  state- 
ments of  the  debtor. 

Never  be  drawn  into  an  argument ;  the  phrase  "the  stage 
of  discussion"  used  in  Chapters  XVHI  and  XIX,  does  not  for 
a  moment  imply  that  there  should  be  any  debate  as  to  the 
justice  of  the  creditor's  attempts  at  collection,  but  merely  in- 
dicates that  at  this  point  he  can  make  a  serious  attempt  to 
secure  a  reply,  and  to  appeal  to  the  debtor's  reason. 

Never  threaten  criminal  proceedings  or  employ  threats 
of  any  character.  A  mere  suggestion  of  unpleasant  conse- 
quences, of  the  visit  of  an  attorney,  or  collector,  of  lost  credit 


1> 


>^ 


436  NEW  COLLECTION   METHODS 

standing,  or  the  costs  and  unpleasant  notoriety  of  suit,  is 
sufficient  without  making  actual  threats.  A  threat  may  make 
one  liable  to  federal  or  state  law.  Never  collect  by  post-card 
or  print  a  statement  on  the  outside  of  an  envelope  likely  to 
reflect  upon  the  recipient.  Precise  rulings  on  any  material  to 
be  used  can  be  obtained  from  a  postal  inspector  by  asking  the 
aid  of  local  postal  authorities. 

Long  or  Short  Letters? 

The  short  letter,  other  things  being  equal,  suggests  action. 
The  long  letter  suggests  discussion  and  consideration.  Accord- 
ingly, except  in  very  rare  instances,  a  collection  letter  should 
be  short.  It  need  almost  never  exceed  a  single  page;  if  para- 
graphs are  single-spaced,  with  double  spacing  between  them, 
and  still  more  if  the  elite  type  is  used,  hardly  one  letter  in 
a  thousand  need  run  over  one  page. 

A  short  letter  suggests  that  there  is  no  use  talking  about 
the  matter ;  the  facts  are  as  stated  and  the  mere  suggestion  of 
an  appeal  to  good-will  or  fair  play,  etc.,  will  surely  be  sufficient 
to  secure  prompt  action. 

A  long  letter,  on  the  other  hand,  implies,  "Let  us  have 
a  serious  talk  about  this  matter.  I  do  not  believe  you  have 
given  it  consideration,  or  appreciated  its  full  gravity.  I  want 
to  help  you  to  look  at  the  matter  in  the  proper  light."  But. 
if  a  letter  is  long,  that  is  to  say,  a  full  page  or  nearly  so,  it 
must  carefully  exclude  all  meaningless  words  and  sentences 
and  marshal  before  the  eyes  of  the  debtor  a  close-packed 
array  of  facts  and  arguments  which  demonstrate  the  strength 
of  the  creditor's  position.  Plenty  of  illustrations  are  included 
in  other  chapters  in  this  book. 

It  is  a  good  plan  for  letters  in  a  series  to  vary  somewhat 
in  length,  so  that  they  do  not  all  look  alike  to  the  customer. 
This  arouses  his  interest  and  he  is  more  likely  to  read  each 
letter  with  attention. 


WRITING  THE  LETTER 


437 


Does  a  Delinquent  Deserve  Courtesy? 

The  question  of  "good  treatment"  or  "rough  treatment" 
has  been  abundantly  discussed  elsewhere  in  this  book.  Un- 
failing courtesy  is  always  more  productive  of  respect,  and  in 
the  long  run  is  more  likely  to  lead  to  action  than  severity. 
Sarcastic  statements  arouse  anger  and  do  not  secure  action, 
so,  although  they  may  be  useful  as  a  means  of  relieving  the 
creditor's  feelings,  they  hardly  add  to  the  efficiency  of  his 
department.  Write  such  letters  if  you  want  to;  but  let  them 
cool  for  twenty-four  hours  and  then  throw  them  into  the 
waste-basket. 

"Yes,"  responds  some  collection  manager,  "but  you  forget 
that  this  man  has  defaulted  in  his  obligations.  What  right 
has  he  to  my  courtesy?"  Well,  possibly  he  has  no  right, 
though  it  must  be  remembered  that  in  his  own  home  town  he 
is  walking  the  streets  with  the  respect  and  esteem  of  his 
fellow  townsmen,  and  if  his  conscience  pricks  him  with  the 
thought  of  this  defaulted  obligation,  he  consoles  himself  with 
the  memory  of  the  far  greater  number  of  instances  in  which 
he  has  honorably  lived  up  to  requirements.  To  some  degree 
the  foregoing  is  true  of  every  delinquent. 

But  the  question  is  not  solely  of  his  rights;  it  is  chiefly 
"What  is  the  most  effective  means  of  securing  the  money  and 
of  keeping  the  customer?" 

E.  M.  Hurley,  when  Chairman  of  the  Federal  Trade 
Commission  stated  in  an  address  at  Philadelphia  before  the 
Sales  Managers  Association,  that  it  would  pay  the  United 
States  Government  not  to  stand  on  its  rights  and  to  ask 
whether  Uncle  Sam  was  obliged  to  show  courtesy  to  the  people 
of  the  country,  but  to  inquire  instead  whether  the  relation 
between  government  and  people  could  not  be  made  more 
effective  by  adopting  greater  cordiality  and  personal  quality 
in  correspondence.  "Little  things,"  said  Mr.  Hurley,  "very 
often  are  responsible  for  misunderstandings  and  may  cause 


438 


NEW  COLLECTION  METHODS 


ill  feeling  when  there  is  no  substantial  reason  for  it.  The 
United  States  Government,  which  I  understand  transacts  90 
per  cent  of  its  business  by  mail,  does  not  write  letters  that 
pull.  They  are  apt  to  begin,  *Sir:  You  are  hereby  notified' 
and  the  remainder  of  the  letter  is  often  couched  in  terms  which 
put  the  recipient  on  the  defensive  and  make  helpful  co-opera- 
tion impossible."  He  told  how  a  certain  department  instructed 
its  employees  that  if  they  used  the  word  "please"  in  telegrams 
they  would  have  to  bear  the  expense  themselves;  that  the 
same  department  objected  to  the  phrase  "We  thank  you  for 
the  favor,"  on  the  basis  that  the  Government  did  not  have  to 
thank  anyone.  "Is  there  any  quicker  way,"  he  asked,  "to 
separate  friends  or  to  force  customers  off  your  books,  or  to 
create  a  break  between  business  men,  than  to  send  out  cold, 
sarcastic  letters?  I  honestly  believe  that  much  of  the  ill  feel- 
ing that  has  existed  between  government  and  business  in  the 
past  fifteen  years  has  been  caused  by  the  discourteous  letters 
that  have  been  issued  by  the  departments  at  Washington  to 
business  men."  He  ended  by  saying  that  each  department 
at  Washington  should  have  a  sales  manager  who  is  accustomed 
to  sell  service. 

Diplomatic  Language 

It  must  never  be  forgotten  that  the  man  who  handles  credit 
or  collection  letters  is  working  in  a  powder  factory,  where  a 
careless  step  may  strike  a  spark  that  will  blow  the  whole  estab- 
lishment into  the  air.  A  business  man's  "credit  conscience" 
is  the  tenderest  part  of  his  anatomy,  and  he  does  not  like  to 
have  it  roughly  handled. 

"No,  I  don't  bother  with  diplomacy  in  letters,"  said  one 
credit  man  presiding  over  the  city  desk  in  a  wholesale  com- 
pany. "If  one  of  my  customers  exceeds  his  credit  limits  or 
anything  like  that,  I  have  him  come  in  and  then  I  have  it  out 
with  him."     The  testimony  of  his  customers  was  that  he 


WRITING  THE  LETTER 


439 


needlessly  irritated  them  by  blimt  and  brusque  questions  when 
a  little  diplomacy  would  have  achieved  the  results  and 
improved  good-will. 

The  language  used  in  diplomatic  correspondence,  of  which 
many  remarkable  examples  have  been  before  the  public 
in  the  last  few  years,  illustrates  the  caution  and  reserve  neces- 
sary in  treating  subjects  which  concern  such  sensitive  matters 
as  national  honor.  A  single  clumsy  statement,  a  moment's 
indiscretion,  may  have  serious  consequences;  while  any  lack 
of  firmness  or  failure  to  show  intellectual  strength  would  be 
interpreted  by  the  opponent  as  an  evidence  of  weakness. 
President  Wilson's  diplomatic  and  administrative  communi- 
cations form  a  body  of  documents  unexcelled  in  the  annals  of 
government,  and  are  worthy  the  careful  study  of  every  execu- 
tive whose  correspondence  deals  with  matters  of  importance. 

The  point  in  which  diplomats  must  be  especially  cautious 
is  that  of  not  attributing  to  the  party  addressed,  improper 
motives  for  action  committed.  The  action  may  be  stated  im- 
personally; then  some  assumption  favorable  to  the  good  in- 
tentions of  the  other  party  may  be  mentioned,  and  his  conduct 
in  the  past  may  be  brought  in  as  evidence  to  show  why  the 
writer  is  confident  of  his  present  good  intentions.  If  the 
writer  strongly  suspects  improper  motives,  he  will  express, 
when  mentioning  them,  extreme  reluctance  to  believe  that 
they  can  possibly  exist. 

One  highly  diplomatic  manner  of  handling  unpleasant 
subjects  is  to  speak  frankly  of  the  writer's  own  shortcomings 
in  these  particulars.  "I  realize  perfectly,"  the  credit  man  may 
write,  "that  many  circumstances  may  occur  which  embarrass 
a  merchant  in  making  payment  as  promptly  as  his  own  good 
business  sense  would  advise  him.  We  have  been  in  business 
too  many  years  not  to  have  had  experience  in  such  matters 
ourselves.  At  the  same  time  I  can  say  that  we  have  tried  to 
make  it  a  matter  of  policy  to  have  at  all  times  the  frankest 


440 


NEW   COLLECTION   METHODS 


WRITING  THE  LETTER 


understanding  between  ourselves  and  our  creditors,  believing 
that  this  is  the  only  satisfactory  method  in  the  long  run."  By 
a  study  of  the  chapters  on  psychology,  the  writer  will  often 
see  how  a  subject,  which,  when  carelessly  handled,  would 
arouse  anger,  shame,  or  fear  in  such  a  way  as  to  delay  pay- 
ment and  injure  good-will,  can  be  turned  into  an  appeal  to 
pride,  or  self-interest,  or  good-will,  reselling  the  customer  and 
getting  the  money.  A  single  sharp  phrase,  indirectly  intro- 
duced, is  usually  more  effective  in  case  of  need  than  a  letter 
filled  with  threats.  On  the  other  hand,  certain  types  of  busi- 
ness men  understand  no  language  save  that  of  the  "big  stick." 

Specific  Language 

The  previous  section  has  shown  the  importance,  in  deal- 
ing with  the  customer's  motives  for  failure  to  pay,  of  using 
diplomatic  language.  At  the  same  time  in  order  to  produce 
action  the  letter  must  employ  specific  language.  But  this 
specific  language  can  be  restricted  to  topics  not  likely  to  cause 
offense;  for  example,  some  experience,  action,  or  portion  of 
office  routine  of  the  writer  or  the  customer.  For  instance, 
"This  morning  Mr.  Walton  laid  on  my  desk  a  memorandum 
showing  our  correspondence  on  your  account.  I  see  that  it 
indicates  dates  of  January  4,  January  14,  January  24,  as  the 
ones  on  which  we  have  sent  you  reminders" — or  another 
example,  "Yesterday's  issue  of  the  Wall  Street  Journal  con- 
tained the  following  statement"— or  again,  "Just  put  on  your 
memorandum  pad  for  August  10,  'Send  Smith  check  for 
$150'  " — or  a  very  direct  appeal,  "Now,  suppose  you  turn  to 
your  bookkeeper  and  say,  *Miss  Jones,  make  out  a  check  for 
Smith  and  Company.' " 

Instances  like  the  foregoing  could  be  multiplied;  a  great 
many  are  to  be  found  in  the  letters  shown  throughout  this 
book.  A  single  phrase  of  specific  language,  especially  if  it 
pictures  some  action  so  clearly  as  to  bring  it  vividly  before 


441 


the  reader's  mind,  is  a  powerful  incentive  to  action.  Coming 
at  the  beginning  of  the  letter,  it  arouses  interest  and  secures 
attention ;  coming  at  the  end  it  suggests  immediate  response. 

Working  for  a  Twofold  Result 

Whenever  a  collection  man  prepares  a  form  or  sits  down 
to  dictate  a  letter,  he  has  his  eye  on  two  results,  namely,  col- 
lection and  resale;  he  is  determined  to  get  the  money,  and  he 
is  equally  determined  to  retain  or  even  to  increase  good-will. 
If  the  collection  of  the  outstanding  account  alone  secures  his 
attention,  he  will  not  unnaturally  show  the  severity  which 
the  delinquent  deserves.  But  if  he  looks  beyond  this  trans- 
action to  friendly  relations  in  the  future  and  estimates  the 
volume  of  business  which  the  coming  years  may  bring  from 
this  customer,  he  is  more  likely  to  realize  that  the  present 
difficulty  is  but  an  incident  in  the  history  of  their  dealings,  and 
that  by  means  of  tact  and  good  advice  he  may  eventually  bring 
the  slow-pay  man  into  the  good-pay  class. 

What  Action  Is  Wanted? 

The  action  desired  is  prompt  payment  in  full;  part  pay- 
ment on  a  basis  agreed  upon ;  a  definite  agreement  to  pay  at 
a  certain  time  or  times ;  or  an  answer  explaining  the  debtor's 
position,  on  the  basis  of  which  an  arrangement  may  be  made. 
Any  one  of  these  may  be  the  result  which  the  collection  man 
works  toward  when  writing  a  letter.  He  will  not  have 
determined  on  his  objective  without  an  analysis  of  the  situa- 
tion. If  he  has  determined  to  secure  payment  in  full,  his 
letter  will  not  suggest  or  imply  that  any  other  basis  for  settle- 
ment will  be  accepted.  If  he  makes  an  offer  of  a  different 
character,  it  must  be  clear-cut  and  definite,  and  his  letter,  how- 
ever reasonable  in  tone,  must  not  imply  any  weakening  from 
this  position.  It  is  frequently  a  good  plan  to  put  such  an 
offer  last  in  the  letter,  so  that  no  qualifying  statement  may 


ii 


».  ( 


NEW  COLLECTION  METHODS 
442 

appear  to  impair  its  force.  Of  course,  it  may  be  desirable  to 
follow  such  an  offer  with  a  statement  that  other  less  lenient 
measures  will  follow  should  he  fail  to  take  advantage  of  this 
offer. 

Outlining  the  Letter 

Just  as  the  procedure  of  a  collection  department  must  be 
clear-cut  and  definite,  advancing  from  point  to  pomt  with 
the  sureness  of  a  skilled  chess  player  who  is  certam  of  victory, 
so  the  various  paragraphs  of  a  collection  letter  or  credit  letter 
must  show  clear  organization,  giving  evidence  of  a  mind  that 
has  the  end  in  view  from  the  beginning.     However  lenient 
such  a  letter  may  be  in  tone,  its  logical  outline  must  show  the 
strong  hand  under  the  velvet  glove.     A  letter  which  rambles 
or  introduces  unnecessary  matter,  or  which  draws  illogical 
conclusions,  is  worse  than  no  letter  at  all.     Herein  hes  the 
difficulty  of  correspondence  on  this  subject,  which  drives  some 
executives  to  a  belief  in  letters  of  only  two  or  three  sentences, 
or   in    sending   telegrams.     The   difficulty   with   the   corre- 
spondence  and  procedure  which  is  restricted  as  it  were  to 
monosyllables,  is  that  there  is  nothing  constructive  in  it;  there 
is  only  a  series  of  urgent  demands.    If  the  debtor  is  sullen  or 
discouraged  he  will  disregard  this  kind  of  communication  as 
long  as  possible,  while  the  creditor  has  forfeited  his  oppor- 
tunity for  building  good-will  and  developing  him  into  a  source 
of  more  profitable  relations. 

In  general,  the  safe  rule  for  all  correspondence  is  to  put 
facts  first  and  comments  later.  This  shows  fairness  and 
avoids  misunderstanding;  the  facts  speak  for  themselves  and 
the  comments  which  follow  can  be  more  guarded  without 
losing  effect.  A  typical  outline  begins  by  stating  facts  of  un- 
answered correspondence,  broken  promises,  etc. ;  then  suggests 
possible  causes  for  this;  then  includes  resale  material,  such 
as  a  courteous  statement  of   fundamental  credit  principles; 


WRITING  THE  LETTER 


443 


then  states  the  customer's  own  undoubted  appreciation  of 
the  foregoing  facts,  and  requests  action. 

Another  typical  outline  begins  with  a  request  for  action, 
followed  by  a  specific  statement  of  the  reason  for  asking  it, 
concluding  with  a  statement  of  confidence  that  the  action  will 
be  forthcoming. 

Another  logical  structure  begins  with  some  sort  of  "hypo- 
thetical question,*'  an  anecdote  or  illustration,  followed  by  a 
statement  of  the  present  situation  between  the  creditor  and 
his  customer,  showing  how  it  parallels  the  foregoing  situa- 
tion, and  concluding  with  a  request  for  action.  In  the 
chapters  on  psychology  and  on  procedure,  as  well  as  on  selling 
and  reselling  credit,  various  suggestions  will  be  found  for  the 
organization  of  the  individual  letter,  both  in  principle  and  in 
example. 

Long  Sentences,  Short  Sentences,  and  Questions 

A  very  different  effect  is  produced  by  the  same  statement 
if  put  in  different  sentence  forms.  A  long  sentence  may 
produce  the  effect  of  courtesy  and  diplomacy;  a  short  sentence 
is  incisive  and  emphatic,  and  carries  an  air  of  finality;  while 
a  question  points  a  vigorous  finger  straight  at  the  reader, 
challenging  his  attention.  "We  need  hardly  remind  you  that 
in  fairness  to  our  other  customers  who  abide  by  our  terms 
and  to  whom  we  make  the  same  prices  as  to  yourselves,  we  are 
unable  to  allow  extensions  unless  some  specific  arrangement 
is  made  in  advance,"  is  a  statement  which  produces  one  effect 
on  the  reader.  "We  cannot  allow  extensions  when  no  arrange- 
ment has  been  made,"  produces  a  different  effect.  Still  more 
insistent  in  its  claim  for  attention  is  the  question,  "Is  it  fair 
to  take  an  extension  without  making  definite  arrangements 
with  us?"  or,  "Do  you  think  we  can  allow  any  of  our  cus- 
tomers to  take  an  extension  without  previous  definite  arrange- 
ment ?" 


444 


NEW   COLLECTION    METHODS 


ill 


An  Abrupt  Beginning 

The  usual  business  letter,  including  that  from  the  credit 
or  collection  department,  begins  with  some  courteous  and  un- 
emphatic  statement  referring  to  the  date  of  previous  corre- 
spondence or  other  matter  of  routine.  Consequently  it  is  not 
a  bad  plan,  especially  in  collecting  petty  accounts  or  where 
correspondence  has  been  persistently  neglected,  to  begin 
abruptly,  as  with  the  question,  "Can  you  tell  us  of  any  good 
reason  why  you  have  not  settled  your  account?"  Such  a 
sentence  comes  like  a  blow  in  the  face.  The  rest  of  the  letter 
may  be  entirely  courteous  and  appeal  to  pride,  good-will,  or 
fair  play ;  indeed,  it  is  well  to  give  it  this  character.  But  the 
reader  has  received  a  jolt  that  makes  him  "sit  up  and  take 
notice."  If  the  remainder  of  the  letter  is  courteous,  he  will 
not  feel  angered.  Such  devices  should  be  used  only  when 
fully  justified. 

Handling  Each  Paragraph 

What  has  been  said  about  the  length  and  form  of  sen- 
tences applies  also  to  paragraphs.  The  best  test  of  this  state- 
ment is  to  go  over  some  of  the  letters  in  the  chapters  on  pro- 
cedure, and  compare  the  effect  of  long  and  short  paragraphs, 
or  of  the  paragraph  that  begins  with  a  question  or  with  a 
short  sentence  as  opposed  to  the  paragraph  that  begins  with 
a  long  sentence.  It  is  advisable  not  to  make  paragraphs  of 
the  same  length;  if  one  consists  of  two  or  three  lines  and  the 
next  of  four  or  five  and  the  next  of  seven  or  eight,  the  effect 
on  the  reader's  attention  is  better.  Credit  and  collection  corre- 
spondence, because  of  the  diplomacy  and  caution  needed,  may 
use  longer  paragraphs  than  ordinary  business  correspondence. 

A  Final  Word 

The  great  importance  of  letters  depends  on  the  oft  re- 
peated fact  that  they  are  the  representatives  of  the  house 


WRITING  THE  LETTER 


445 


which  issues  them.  That  is  to  say,  the  customer  sees  only  the 
correspondence.  Occasionally  he  receives  a  visit  from  a  sales- 
man; at  long  intervals  he  may  attend  a  convention  or  visit 
the  house  which  sells  him  goods  or  receive  a  personal  call  from 
a  representative  of  the  credit  department.  But,  for  the  most 
part  it  is  the  correspondence  which  represents  to  him  the 
house.  If  letters  are  short,  monotonous,  uninteresting;  if 
they  show  no  real  constructive  regard  for  the  merchant's  wel- 
fare and  contain  no  friendly,  personal  touches,  they  have  little 
chance  to  build  good-will  or  to  produce  a  constructive  effect 
in  improving  the  attitude  of  the  customer  towards  his  credit 
responsibility. 

The  man  who  gets  inside  the  envelope  and  journeys  out 
to  visit  his  customer  with  a  friendly  greeting  and  warm  hand- 
clasp, stands  a  better  chance  of  having  his  requests  listened  to 
than  the  man  whose  letters  convey  no  impression  of  his  per- 
sonality. The  reputation  and  wide  influence  of  some  of  the 
foremost  credit  men  in  America  have  been  secured  in  no  small 
measure  through  their  uncommon  ability,  gained  in  daily 
practice,  to  write  good  letters.  They  can  talk  to  the  customer 
with  the  same  cordiality  and  interest  as  if  he  were  seated 
beside  the  credit  desk,  and  despite  the  handicap  of  distance, 
they  can  reach  a  logical,  constructive  solution  of  their  common 
problems. 


INDEX 


Acceptances,  trade,  7,  266-281 
explained  in  detail,  272-281 
form  of,  273 

limitations  in  use,  278-281 
method   of   "cleaning   up"   over- 
due accounts,  44 
not  accepted,  procedure,  24S 
object  of,  266 
offer  of  a  discount  for  the  use  of, 

267 
selling  the  idea,  9,  267 

"deadly  parallel,"  268 

form  used  in,  269 

illustration  of  propaganda,  268 
use  of, 

retail,  269 

successful,    3 
Accounts, 
charge,  388 

meaning  of,  392 

selling,  390 

soliciting,  by  department  store, 

410 

"clean   up"   of,   method  of   han- 
dling, 43 

doubtful, 
constructive   credit  work,  282- 

302 
transfer  to,  402 

mail-order    (See  "Mail-order  ac- 
counts") 

new,    letter    sent    by    department 
store,  406 

overdue, 
critical  moment,  31 


getting  on  a  sound  basis,  the 

solution,  43 
good-natured  appeal,  78 
grocery  store,  method  of  a,  49 
letter  of  discussion,  72 
methods,  stringent,  42 
petty,  collection  procedure,  196 
professional     (See   "Professional 

accounts,  collection  of") 
receivable,  average  amount  of,  13 
record  of,  320 
collection  cards,  323 
ledger,  321 
Acknowledgment,  order, 

example,  374 
Acquisitiveness,  appeal  to,  137,  172 
Action, 
automatic,  maldng  141 
legal    (See  "Legal  action") 
secure, 
in  selling  credit,  53 
requisite  of   a  good  collection 
letter,  136,  441 
severe,  unwillingness  to  take,  use 

as  an  appeal,  163 
suggest,  by  a  story,  144 
Adjustments, 
memoranda  to  and  from  the  claim 
department,  319 
Advantage, 
appeal  to,  136 
secured  by  payment,  147 
Advertismg  campaign, 
publisher  selling  expensive  set  of 

books,  36Q 
to  aid  collections,  109 


447 


i« 


448 


INDEX 


INDEX 


449 


Agency,  collection, 

appeals,  use  of,  229 

draft,  231 

house,  221 

letters,  examples  of,  221-225 

outside,  228 
function,  228 

service  of,  230 
Alexander  Hamilton  Institute,  31 
Anger,  appeal  to,  137 
Annoyance, 

desire  to  avoid,  163 
appeal  to,  136 
Appeal, 

advantage,  136 

agency,  229 

co-operation,  136 

curiosity,  137 

desire  to  avoid  annoyance,  136 

diplomacy,  134 

emotions, 
anger  and  pity  to  be  avoided, 

137 

example  of  use  of,  372 

established  ideas,   125 

establishing   impressions   of   ser- 
vice, 127 

fair  play, 
books  sold  on  instalment  plan, 

364 

family  aftection,  137 

fear,  137 

good  customers,  141-156 
action,  making  automatic,  141 
action,   suggesting  by  a  story, 

144 
confidence,  showing,  151 
co-operation,  156 
discount,  urging,  149 
extensions,  granting,  151 
fairness,  showing,  145 
"get  on  your  feet  again,"  152 
good-will,  15s 
habits,  creating  bad,  142 


habit,  value  of,  141 
judgment,  referring  to  his,  150 
"letting  him  down  easy,"  143 
obligation  and  advantage,  147 
payment  or  explanation,  obtain- 
ing, 142 
"poor  mouth,"  avoidance  of,  156 
pride,  148 

pride,  courtesy  awakens,  153 
pride,  local,  150 
pride,  phrases  appealing  to,  148 
rating,  aiding  to  restore,  146 
resale,    appeal    to    self-interest, 

153 

respect,  loss  of,  means  loss  of 
trade,  145 

respect,  maintaining,  144 

standing,  helping  to  protect,  146 

urgent  need,  155 
good  nature,  136 
good- will,  136 
honesty,  137 
instinct,  372 
methods  useful  in  any  business, 

135 
obligation,  136 

personality  behind,  133 

pride,  136 

selling  credit,  308 
psychology, 

in  an  interview,  128 

in  letters,  132 
resale  makes  possible,  2$ 
savings,  136 
self-interest,  136 
shame,  137 
success,  137 

surprise  and  impulse,  137 
thick-skinned   customers,   157-178 

anno3rance,  desire  to  avoid,  163 

*a  square  deal" — "classify  your- 
self," 162 

classifying  customers,  168 

combining,  175 


Appeal — Continued 

thick-skinned      customers  —  Con- 
tinued 
"constructive  credits,"  offering, 

160 
curiosity,  171 
fair  play,  158 
fear,   167 

"general  manager"  letter,  i6l 
good  nature,  157 
imagination  of  lion,  168 
imitation,  competition,  and  pa- 
triotism, 173 
"meet  us  half-way,"  159 
pity,  174 

putting  it  up  to  him,  161 
saving  and  acquisitiveness,   172 
severe  action,  unwillingness  to 

take,  163 
severity,  increasing,  170 
shame,   164 

shame  and  family  affection,  166 
shame,  phrases  that  awaken,  165 
success,  desire  for,  173 
surprise  and  impulse,  175,  I77 
"turn  in  the  road,"  176 
urgency,  phrases  that  suggest, 

169 
varying,  157 

"tone,"  134 
variety  of,  130 
Application  for  credit,  best  time  to 

sell  credit,  54 
Approval, 
goods  sent  on,  343 
series  of  letters,  343-349 
Arrears, 
handling  the  customer  in,  by  de- 
partment store,  407 
instalment  collections,  special  pub- 
lications, 384 
Attention,  requisite  of  a  good  col- 
lection letter,  136 


Attention  value,  137 

curiosity,  140 

draft,   139 

personal  reference  in  letters,  138 

telegram,  139 
Attorney   (See  also  "Legal  action") 

local,  as  collector,  230 

B 
Bank, 
as  collector,  232 

practice  of  jobber,  232 
draft,  Canadian  collection  by,  238 
industrial  service  from,  309 
"instructions  to  collection  clerk," 
in     the    matter    of    handling 
drafts,  214 
Bankruptcy, 
means  loss  of  established  trade 

outlet,  117 
overstocking  most  common  cause 
of  retail,  117 
Books, 
instalment  collections,  368-384 
selling  on   instalment  plan,   362- 
366 
Buyer,  collection  from  the  point  of 
view  of,  17 


Canadian  collection  by  bank  draft, 

238 
Cancellation, 

instalment  collections,  special  pub- 
lications, 383 
Capital, 
asking  additional,  before  grranting 

credit,  60 
effect  oi  rising  prices,  i 
method  of  increasing,  to  compen- 
sate for  increased  prices,  6 
Cards, 
collection,  323 


450 


INDEX 


INDEX 


451 


Cards — Con  tinned 
credit,  form  of,  326 
ledger,  form  of,  324 

"Cash  and  carry"  plan,  13,  14 

Cash,  asking,  with  first  order,  61,  62 

Cash,  basis, 
change  from  credit  to,  2,  3 
education  of  customers,  3 

Charge  accounts    (See  "Accounts, 
charge") 

Chart, 
of  collection  procedure,  370,  371 
showing  sales  and  collections,  II 

Check,  voucher,  335 

Claims, 
department,  relation  to,  329 
memoranda  to  and  from  claim  de- 
partment, 319 

"Clean-up,"  the  quick,  42-49 
irrocery  business, 
example  of  a  reformed,  48 
letter  sent  out  by,  49 
handling,  method  of,  43 
lesson  from  a  country  editor,  46 
preventing  a  relapse,  45 
thousand-dollar  letter,  47 

C  O.  D.,  letter  suggesting  first  or- 
der to  be  sent,  61 

Collection    agency     (See   "Agency, 
collection") 

Collection  cards,  323 

Collection   department, 
cost,  315 

system  for    (See  "System  for  a 
collection  department") 

Collection  manager,  function  of,  15 

Collection  procedure    (See  "Proce- 
dure, collection") 

Collection   proposals,    effective,  90- 

lOI 

cutting  down  the  order,  90-92 
following  up  part  payments,  94 
helping  the  South,  96-99 


note  of  finality,  100 
settlement  of  old  debt,  95 
tactful  rebuke,  100 
turning  down  an  old  customer,  93 
Collection  reform,  need  of,  1-7 
change  from  credit  to  cash  basis, 

2,3 

educating  customer,  3 
change  not  automatic,  2 
co-operation,  7 
efficiency  texts, 

collect  money  due,  6 

increase  turnover  of  stock,  5 
methods, 

of  increasing  capital,  6 

of  new  business,  5 
sound  policy,  6 
successful  collection  policy,  4 
the  time  to  put  our  house  in  or- 
der, 4 
Collections, 
constructive  work  in,  26,  27 
credit  more  than  half  of,  50 
forcible  methods  expensive,  35 
graphical  representation  of  sales, 

and,  II 
instalment,  principle  of  resale  in, 

29 
luxury  goods,  21 
methods  for  the  "short  run,"  42 
other    departments,    intimately 

bound  up  with,  28 
part  of  marketing,  26 
place  of  in  the  marketing  plan, 
17-22 

buyer's  point  of  view,  17 

enlarging  business  by  selling  to 
poor  credit  risks,  21 

goal  of  credit,  17 

problems  of  increased  volume, 
20 
principle  of  resale,  23-30 
psychology  of    (See  "Psychology 

of  collections") 


Collections — Continued 
quick  "clean-up,"  42-49 
"short  run,"  methods  of,  42 
sometimes  considered  a  disease, 

26 

unfamiliar  territory,  20 
while  mental  image  is  fresh,  33 
Collector, 

function  of,  412 

salesman  as,  121 
Competition,  appeal  to,  174 
Confidence  showing,  151 
Contempt,  avoidance  of,  137 
Constructive    credit    work      (See 

"Credit  work,  constructive") 
"Controller"  letter,  241 
Co-operation, 

appeal  to,  136 

collection  reform,  7 

resale  makes  for,  25 

selling  the  idea,  156 

traveling  representative,  304 

with  customers,  303 
Co-operation  with  sales  department, 
no- 1 24 

educating  customer  as  to  terms, 

"5 

evils  of  forced  orders,  118 
failure  to  co-ordinate  means  loss, 

III 
obtaining  information,  114 
overstocking,  how  to  avoid,  117 
salesman, 

advising  as  to  collection  meth- 
ods,  120 

as  collector,  121 

constructive  credits,  119 

educating,  124 

friendly    letter    to    delinquent, 
122 

linking  arms  with,  II2 

help,  way  he  can,  113 

new  customer  report,  116 

persuading  to  co-operate,  123 


reselling  the  house  after  delin- 
quency, 119 
watching  the  customer,  120 
Correspondence     (See    also    "Let- 
ters") 

file,  325 

filing  of,  318 

folder,  ledger,  327 

system,  399 

writing  letters,  429-445 

attention   to   "symptomatic   de- 
tail," 432 
beginning,  abrupt,  444 
content  and  expression,  435 
courtesy  to  a  delinquent,  437 
deciding     on    what    action    is 

wanted,  441 
department  manual,  432 
difficulties,  429 
diplomatic  language,  438 
form  letters,  value  of,  430 
importance  of,  429,  444 
length,  436 
outline,  442 

paragraph,  handling  each,  444 
precautions,  essential,  435 
questions,  443 
sentences,  long,  443 
sentences,  short,  443 
specific  language,  440 
study  of  examples,  433 
use  of  letters  written  by  others, 

430 
visualizing  the  reader,  434 
working  for  a  twofold  purpose, 
441 
Correspondence  courses, 
collections,  352 

organization  of  department,  352 
credit  risk  under  instalment  plan, 

351 
instalment  collections,  351-361 

Cost, 
collection  department,  315 


452 


INDEX 


INDEX 


I 


'S  it  5* 


41 


Cost — Continued 
credit  department, 
factors  affecting  an  estimate  of, 

12 

investifiration  of  retail  grocers, 

13 

Courtesy, 

awakens  pride,  153 

does  a  delinquent  deserve?  437 
Credit, 

card,  form  of,  326 

cash  basis,  change  to,  2,  3 

constructive,  7 
offering,  160 

cost  of,  13,  14 

giving  away,  42 

goal  of,  17 

granting,  retail  store,  389 

information  (See  "Information 
from  the  customer") 

limit,  66 
memoranda  to  sales  department 
concerning,  319 

period,  average,  13 

rating,  memoranda  to  sales  de- 
partment concerning  changes  in, 
319 

refusing,  58-64 
asking  additional  capital,  60 
asking  cash  with  first  order,  61 
asking  part  cash  in  advance  and 

balance  on  delivery,  62 
cash,  customer  asking  credit,  62 
example  of  tactful  refusal,  58 
example   when    for   customer's 
own  good,  58 

reselling  of,  30 

retail    (See  also  "Retail") 
objection  to  long,  393 
30-day,  reason  for,  395 
wholesaler's  interest  in,  14 

selling  and  reselling,  42,  50-57 
"arouse  interest,"  52 


avoidance  of  class  most  likely 
to  prove  delinquent,  50 

best  time,  54 

can  credit  be  sold?  51 

creating  desire,  53 

diplomacy  of  business,  50 

educating  customers  into  better 
habits  of  payment,  50 

established  customers,  54 

information  inadequate  jfor  ship- 
ment of  first  order  on  full 
credit,  56 

letters  on  receipt  of  first  order, 
55 

prestige  of  credit  man  so  great 
customers  desire  to  retain 
good-will,  50 

price  of  credit,  52 

reselling  goods  when  not  able 
to  sell  credit,  57 

retail  credits  and  collections, 
387 

securing  action,  53 

strength  of  credit  man  in  col- 
lections, reasons  for,  50 

welcoming  a  good  customer,  55 
Credit  department, 
co-operation    with    sales    depart- 
ment,  1 10-124 
costs  of, 

.    factors    affecting    estimate    of, 
12 

investigation   of  retail  grocers, 

13 
credit  man's   divison   of   energy, 

9,  10 
educating  salesmen,  124 
efficiency  of, 

abuse   of   discount  privilege,  9 
collecting     information     about 

customers,  8 
educating  salesmen,  8 
percentage  of  losses  from  bad 
debts,  8 


453 


Credit  department — Continued 
efficiency  of — Continued 

selling   the   idea    of   trade   ac- 
ceptances, 9 

testing,  8 

turnover  of  customers,  8 
function  of  credit  manager,  15 
percentage  of  total  sales  required 

to  maintain,  14 
salesman, 

how  he  can  help,  113 

information,    115 

linking  arms  with,  112 
Credit   manager, 
divison  of  energy,  9,  10 
function  of,  15 
Credit     statement      (See     "State- 
ment") 
Credit  system,  distinguishing  mark 

of  civilization,  26 
Credit   work,    constructive,   282-302 
advice  and  help  to  overdue  cus- 
tomers, 282 
advice  at  time  of  sale,  299-302 
analysis  on  the  spot,  289 
appeal  to  pride  in  selling  credit, 

308 
applying  the  rod,  298 
choosing  the  right  medicine,  286 
co-operation   with   customer,   303 
deceiving  a  "silent  partner,"  291 
examples  of,  305,  311 

a  good  salesman  but  no  busi- 
ness man,  296 

a  looted  business,  290 

a  striking  success,  295 
financial   advice,  294 
friendly  salesman,  283 
getting  the  "big  head,"  297 

helping  customer  to  help  him- 
self, 284 
"if   we   had    followed   your   ad- 
vice," 297 
industrial  service  from  banks,  309 


insincerity,  282 

insolvency,  282 

instalments,  282 

pulling  a  gun  on  the  overdue  cus- 
tomer, 285 

taking  an  inventory  of  the  debtor, 
288 

traveling  representative,  282,  304 

working  program,  298 
Curiosity, 

appeal  to,   137,   171 

attention  value  of,  140 
Customers, 

appeals  to  good,   141-156 

classifying,  168 

collecting  information  about,  8 

collection  from  the  point  of  view 
of,   17 

co-operation  with,  303 

credit,  goods,  and  service,  37 

desire  to  keep,  40 

educating  into  good  methods,  42 

payment,  reasons  for,  36-39 

reputation, 
credit-buying,  37 
getting  right  kind  of  goods,  37 

selling  credit  to  established,  54 

thick-skinned,  appeals  to,  157-178 

turnover  of,  8 
value  of,  38 

unified  marketing  plan,  18 

watching  the,  120 

welcoming  a  good,  55 


Davis  Company,  Frank  E.,  338 
"Dead  beats,"   psychology  in   han- 
dling, 132 
Delinquency, 
avoiding    class    most    likely    to 

prove  delinquent,  50 
courtesy,  437 
critical  moment,  31 


lu 


i 


iNi  ''f 


454 


INDEX 


INDEX 


455 


Delinquency — Continued 
early  stages  best  time  to  use  prin- 
ciple of  resale,  31 
forcible  methods  expensive,  35 
inspirational  folders,  31 
instalment     collections,     special 

publicatons,  384 
resale  letters,  examples  of,  32,  33 
"reselling  of  the  house"  by  sales- 
r-:in,  119 
Department  manual,  432 
Departments, 
co-ordination  of,  19 
essential  unity  of,  18 
Department   store   collections,   406- 
411 
handling  the  customer  in  arrears, 

407 

opening  a  new  account,  406 

overselling    means    hard    collec- 
tions, 410 

problems,  406 

procedure,  408 

soliciting  charge  accounts,  410 
Department  system    (See  "System 

for  a  collection  department") 

Desire,  creating,  in  selling  credit,  S3 

Detail, 
"symptomatic,"  attention  to,  43^ 

Diplomacy, 

of  business,  50 

"tone"  of  the  appeal,  134 
Direct-selling  manufacturer, 

collection  problem,  21 
Discounts, 

abuse  of  privilege,  9 

extra,  method  of  wholesaler,  234 

offer  of,  for  use  of  acceptance, 
267 

payments  to  secure,  38 

reason  for  making  payment,  39 

"selling"  the,  102 

example  of  letter,  103 


reforming  abuse,  104 
urging,  149 
Discussion,  stage  of, 
basis    of    personal    acquaintance, 

202 
constructive  work,  198 
friendly  and  earnest,  204 
inquiry  as  to  failure  to  pay,  198 
knowledge  of  local  conditions  in 

customer's  territory,  201 
sizing  up  customer,  200 
study  of  ledger,  201 
suggestive  letters,  204-208 
Distribution  of  goods, 

collections  constructive  aid  in,  26 
Doctors      (See    "Professional    ac- 
counts, collection  of") 
Doubleday,  Page  and  Company,  32 
Doubtful  accounts,  transfer  to,  402 
Draft, 
agency,  23 1 
attention  value,  139 
bank, 

Canadian  collection  by,  238 
common  cause  of  complaint,  216 
good  method  of  sending,  213 
making  effective,  209 
objections  to,  21 1 
refused,  211 
sight,   sending,  259 
unpaid,  245 
use  of,  199 
regular,  234 
wholesaler,  233 


Eaton,  Crane  and  Pike  Company, 

305 

Educating  the  customer, 

appeal  to  interest  and  not  merely 

obligations,  65 
better  habits  of  payments  through 

"selling  credit,"  50-57 


Efficiency,  the  test  of,  8-16 
collect  money  due,  6 
credit  department,  8 
credit  department  cost, 
factors  affecting  an  estimate  of, 

12 
investigation  of  retail  grocers,  13 
percentage  of  loss  not  true  test, 

15 
credit  man's  division  of  energy, 

9,  10 
increase  turnover  of  stock,  5 
retail  credits,  wholesaler's  inter- 
est in,  14 
sales  and  oollections  shown  graph- 
ically, II 
Emotion,  appeal  to,  372 
Envelope  inserts,  means  of  arous- 
ing interest  in  credit,  108 
Equipment    for    collection    depart- 
ment, correspondence  file,  320 
file  for  transcript  of  ledger  infor- 
mation, 320 
file  of  credit  Information,  320 
invoice  file,  320 
ledger,  320 

special  maturity  file,  320 
Examination, 

ledger,  schedule  for,  333 
Examples,  study  of  letters,  433 
Explanation, 

obtaining  payment  or,  142 
Extensions, 
granting,  151 
handling   an,    71 

instalment  collections,  special  pub- 
lications, 383 


Fairness, 
appeal  to,  158 
requisite    of    a    good    collection 

letter,  136 
showing,  145 


Family  affection,  appeal  to,  137,  166 
Fear, 
appeal  to,  137,  167 
of  force,  24 
Files, 
correspondence,  320,  325 
credit  information,  320,  323 
invoices,  320,  325 
special  maturity,  320,  328 
tickler,  328 

transcript  of  ledger  information, 
320 
Financial    statement     (See    "State- 
ment") 
Financing,  advice  in,  294 
First  National  Bank  of  Joliet,  270 
First  National  Bank  of  Utica,  New 

York,  310 
Follow-up, 

books  sold  on  instalment  plan,  366 
handling    a    "clean-up"    of    ac- 
counts, 45 
system,  320 
Force, 
appeal  to,  40 
fear  of,  24 

methods  too  expensive,  35 
Form-letters, 
book,  wholesaler's,  249-256 
series,  257-264 
appeal  to  pride,  258 
avoiding  controversy  over  small 

amount,  264 
"branch  manager"  letter,  263 
case  of  unusual  importance,  262 
disappointment  at  no  response, 

258 
policy  as  to  use,  257 
pressing   for  payment,   259 
sending  sight  draft,  259 
"the  turn  of  the  screw,"  261 
using  multigraph,  257 
value  of,  430 
Fuller-Morrison  Company,  11 


456 


INDEX 


"General  manager"  letter,  i6i,  235, 

238 
Good  nature,  appeal  to,  136,  157 
Goodrich  Company,  B.  F.,  278,  305 
Goods, 
reselling, 
by  collection  department,  30 
information  inadequate  to  ship 
first  order  on  full  credit,  56 
right,  reputation  an  advantage  in 

securing,  37 
sent  on  approval,  343 
Good-will, 
appeal  to,  136,  155 
reason  for  payment,  39 
Graphical    representation    of    sales 

and  collections,  11 
Grocery  business, 
example  of  a  reformed,  48 

H 

Habit, 
creating  bad,  142 
force  of,  24,  418 
requisite   of   a  good   collection 

letter,  136 
upset  by  cross-currents  of  op- 
posing desires,  25 
reason  for  payment,  39 
value  of,  141 
Harley-Davidson  Motor  Cycle  Co., 

32 
Hart,  Schaffner  and  Marx,  in,  303 

Honesty,  appeal  to,  137 
House  organ, 

using,     for     constructive     credit 
work,  lo8 


Imitation,  appeal  to,  173 
Impulse, 
principle  of,  137,  175.  "^11 
use  of,  372 


Industrial  service  from  banks,  309 
Information   from   customer,   65-73 
books  sold  on  instalment  plan,  363 
collecting,  8 
credit  file,  320 
credit  statement,  requested, 

refusal  to  supply,  83-86 
extension,  handling  an,  71 
letter  of  discussion,  72 
letters    sent    on    receipt   of    first 

order  asking  for,  55,  56 
obtaining  through  salesman,  114 
property  statement,  65 

correspondence  relative  to,  ex- 
ample of,  67-69 

demanding,  70,  71 

meeting  objections  to,  66 
request    for    credit    information, 

86-89 
retailer's  credit  record,  396 
salesman's  help,  113 
showing  where  his  interest  lies, 

65 
Ingersoll  and  Brother  Company, 

Robert  H.,  108 
Inserts,   envelope,    for   constructive 

credit  service,  108 
Insincerity,       constructive      credit 

work,  282 
Insolvency,       constructive       credit 

v/ork,  282 
Instalment  collections,  351-361 
constructive  credit  work,  282 
correspondence  school,  352 
credit  risk,  351 
general  publications,  362-366 
appeal  to  fair  play,  364 
final  letters,  examples  of,  367 
first  resale,  364 
follow-up,  366 

hopeless  and  extreme  cases,  365 
letter  before  taking  legal  action, 

365 


INDEX 


457 


Instalment  collections — Continued 
general  publications — Continued 
obtaining     credit     information, 

363 
selling    books     on     instalment 
plan,  362 
principle  of  resale  in,  29 
proposing  weekly  payments  to  a 

slow-pay,  80 
special  publications,  368-384 
acknowledgment  letter,  374 
"arrears"  and  "delinquent"  se- 
ries of  letters,  384 
"extension,"  "cancellation,"  and 
"misunderstanding"  series  of 
letters,  383 
"good  customer"  series  of  let- 
ters, 376-378 
hardest  form  of  problem,  386 
"poor  customer"  series,  378-383 
procedure,  chart  of,  370,  371 
procedure,     general     character, 

384 

procedure,  plan  of,  375 

sales  campaign,  369 

school     conducted     by     credit 
manager,  S72 

unusual  credit  risk,  368 

verifier's  report,  372,  373 
Instalment  payments, 

following-up,  94 
Instinct,  appeal  to,  372 
Interdepartmental    communications, 

335 
Interest, 

arousing,  in  selling  credit,  52 
Interview, 

psychology  of,  128 
retail  credit,  130 
Inventory, 

taking  an,  of  a  debtor,  288 
Invoices, 

file,  320,  325 

method  of  handling  routine,  334 


notification,  183 

personal  maturity  file,  328 

settlement  of  previous,   good-na- 
tured appeal,  78 

special  stickers  attached  to  pre- 
vent relapse,  45 

use  of,  by  mail-order  house,  235 
Irving  National  Bank,  272 


Jobber    (See  also  "Wholesaler") 
elimination    of,    effect    on    credit 
department,  22 

Judgment, 
asking  for  customer's  own,  150 


Language, 
diplomatic,  438 
specific,  440 

Law    (See  "Legal  action") 
Lawyers      (See    "Professional    ac- 
counts, collection  of") 
Ledger,  318,  320 
card,  form  of,  324 
correspondence  folder,  327 
examination  of,  319 
schedule  for,  333 
information,  319 
record  of  account,  321 
studying,  201 

Legal  action, 
letter  before   taking,   books   sold 

on  instalment  plan,  365 
threats  of,  219,  246 

example  of  letter,  252 
warning  of,  217 

Letters      (See    also    "Correspond- 
ence") 
acknowledgment  of  order,  374 
appeals  to  good  customers,   141- 
156 


458 


INDEX 


INDEX 


459 


Letters — Continued 
arranging  for  weekly  payments, 

80 

asking, 
additional  capital,  60 
cash  with  first  order,  61 
first  order  be  sent  C.O.D.,  61 
part  cash  in  advance  and  bal- 
ance on  delivery,  62 

attention  value,  137 
curiosity,  140 

books    sold    on    instalment   plan, 

364-367 
cash  customer  asking  credit,  62 
collection  agency  letters,  221-225 
constructive    credit    work    illus- 
trated, 105-107 
"controller,"  241 
correspondence  school  collections, 

352-361 

cutting  down  the  order,  90-92 

demanding  information,  70,  71 

diplomacy,  134 

discussion,  stage  of,  72 
appeal  to  pride  and  fair  play, 

208 
friendly  and  earnest,  204 
lumber  manufacturer,  207 
series  of  suggestive  letters,  204- 
207 

doctor's  accounts,  420-425 

draft  refused,  211-213 

form-letters  series,  257-264 

freak,  objections  to,  139 

"general    manager,"     161,    216, 

235,  238 
grocery     store     changing     terms 

from  30-day  to  two  weeks,  49 
handling  an  extension,  71,  72 
handling  the  customer  in  arrears, 

407.  408 
helping  the  South,  96-99 
holding  up  the  orders,  74-77,  79 


instalment  collections,  special  pub- 
lications, 
"arrears"  and  "delinquent"  se- 
ries, 384 
"extension,"  "cancellation,"  and 
"misunderstanding"        series, 

383 
"good  customer"  series,  376-378 

"poor  customer"  series,  379-383 
last  appeal  for  settlement,  81 
"last  chance,"  247 
long  and  short,  55 
methods  useful  in  any  business, 

135 
new  account,  sent  by  department 

store,  406 

note  of  finality,  100 

personal,  188 

personality  behind  the  appeal,  133 

personal  reference  in,  138 

petty  accounts,  196 

plain     statement    regarding    un- 
settled account,  81 

psychology  in,  132 

refusal  to  give  information  and 
order  cancelled,  84 

refusing  credit,  59 
stock  covered  by  mortgage,  63 

registered,  226 

relative  to  property  statement,  67- 

69 
reminders,  187,  188-190 

series  of  crisp  collection  letters, 

191-194 
series  of  stronger,  194,  195 
remittance  to  reduce  indebtedness, 

78 

requesting  credit  information,  55, 

86-89 
requesting  settlement  of  previous 
invoice  before  making  shipment, 

78 

requisites  of,  136 
resale,  32,  33 


Letters — Continued 
reselling  goods  when  not  able  to 

sell  credit,  example  of,  57 
retail  collections, 

Ruedebusch  system,  400-404 
selling  fish  on  credit,  339-341 
"selling"  the  discount,  103 
series, 
goods  sent  on  approval,  343-349 
sent  out  by  manufacturer,  236 
specialty  manufacturer,  239 
soliciting  charge  accoimts,  410 
tactful  rebuke,  100 
tactful  refusal  of  credit,  example, 

58 
thousand-dollar  letter  of  a  coun- 
try editor,  47 
threats  of  suit,  219 
tone  of  the  appeal,  134 
turning  down  an  old  customer,  93 
ultimatum,  247 
warning  of  legal  action,  218 
war  time  procedure,  244-248 
wholesaler's      form-letter     book, 
249-256 
Liberty  Loan,  Second, 

flaw  in  sales  campaign,  iii 
Limit, 
credit,  66 
letter  requesting  remittance,  78 
memoranda  to  sales  department 
as  to  changes  in,  319 
Losses, 
percentage   of,   not  true   test  of 
efficiency,  15 
Luxury  goods, 
collection  problem,  21 

M 

Mailing  schedule,  331-333 
Mail  order  accounts,  336-342 

procedure  of  collections,  235 

resale  principle,  342 


selling  fish  on  credit,  337-341 
special  collection  programs,  336 
thirty-day  trial  of  a  razor,  336 
unusual  risk,  343-350 

goods  sent  on  approval,  343 
Manual,  department,  432 
Manufacturer, 
direct-selling, 

collection  problem,  21 
procedure  of,  236 
specialty,  239 
Marketing  plan, 
co-ordination  of  departments,  19 
essential  unity  of  departments,  18 
place  of  collections  in,  17-22 
aid  in  distributing  goods,  26 
buyer's  point  of  view,  17 
direct-selling  manufacturer,  21 
goal  of  credit,  17 
selling  point  of  view,  20 
selling  to  poor  credit  risks,  2X 
problems  of  increased  volume  of 

sales,  20 
unified,  18 
Maturity  file,  320,  328 
Merchandising, 
plan,  place  of  collections  in,  17-22 
task  of,  to  drive  back  frontier,  27 
Mistakes, 

due  to  lax  routine,  42 
Moller  and  Schumann,  308,  327 
Montgomery,  Ward  and  Company, 
182 

Mortgage  on  stock,  63 
Multigraph, 
form  letters,  using,  257 

N 

National  Association  of  Credit  Men, 
100,  104,  108,  120,  186,  209,  232 

National  Cash  Register  Companj-, 
178 


460 


INDEX 


:J\ 


National  City  Bank  of  New  York, 

309 
Notification,  stage  of,  183 

invoice,  183 

statement.  183 


Obligation, 

advantage  to  pay,  147 
appeal  to,  136 
Order, 

acknowledgment  of,  example,  374 
cancellation    of,    and    refusal    to 

give  information,  83 
first, 

asking  cash  with,  61 
letters  asking  for  information,  55 
letters      requesting      property 
statement,  57 
forced,  evils  of,  118 
holding  up,  74 
"master  sheet"  method,  329 
proposal  to  cut  down,  90-92 
Organization, 
chart  showing  instalment  collec- 
tion procedure,  370,  371 
Organization  of  a  collection  depart- 
ment    (See  "System  for  collec- 
tion department") 
Overstocking, 
how  to  avoid,  117 
merchant    cannot    buy    as     fre- 
quently, 117 
most    common    cause    for    retail 
bankruptcy,  117 


Paragraph,  handling  each,  in  writ- 
ing letters,  444 

Patriotism,  appeal  to,  174 

Payment, 
educating  in  better  habits  of,  by 
selling  credit,  50 


methods  in   unfamiliar  territory, 

20 
obtaining,  or  explanation,  142 
part,  following  up,  94 
reasons  for,  summary,  39 

Personality,  behind  the  appeal,  134 
Personal  reference,  letters,  138 
Petty  accounts,  196 
Physician      (See   "Professional   ac- 
counts, collection  of") 
Pity,  appeal  to,  137,  174 
Policy, 
collection, 
need  of  a  sound,  6 
successful,  4 
resale,  cheapest  method,  41 
sales,  determining,   no 
"Poor  mouth,"  avoidance  of,  156 
Prestige,  effect  of,  180 
Prices, 
rising,   effect  on  capital  require- 
ments, I,  6 
Pride, 
appeal  to,  136,  148,  258 

selling  credit,  308 
courtesy  awakens,  153 
local,  150 

phrases  that  appeal  to,  148 
reason  for  payment,  39 
Procedure,  collection, 
agency,  collection, 

use  of  appeal  by,  229 
chart,    instalment    collections    on 

special  publications,  370,  371 
department  store,  406-411 
discussion,  198-208 
basis  of  personal  acquaintance, 

202 
constructive  work,  198 
friendly  and  earnest,  204 
inquiry     as     to     reason     for 
failure  to  pay,  198 


INDEX 


461 


Procedure,  collection — Continued 
discussion — Continued 

knowledge   of   local   conditions 
in  customer's  territory,  201 

ledger,  studying,  201 

letter    appealing   to   pride    and 
fair  play,  208 

letters,  series  of  suggestive,  204- 
207 

letters,  two  lumber,  207 

sizing  up  the  customer,  200 
early  stages,  179-197 

forms,  special,  186 

general  advice,  179 

notification,   183 

petty  accounts,   196 

questions  of,  179 

reminder,  184 

reminder,  personal  letters,   188 

reminder,  series  of  crisp  collec- 
tion letters,  191-194 

reminders,   series   of   stronger, 
194-195 

sale  and  resale,  181 

stickers  and  rubber  stamps,  185 

form-letter  series,  257-264 
appeal  to  pride,  258 
avoiding  controversy  over  small 

amount,  264 
"branch  manager"  letter,  263 
disappointment  at  no  response, 

258 
multigraph,  257 
policy  in  regard  to  use,  257 
pressing  for  payment,  259 
sight  draft,  259 
"the  turn  of  the  screw,"  261 
unusual  importance,  case  of,  262 

instalment, 
correspondence  courses,  351-361 
general  publications,  362-367 
special  publications,  368-384 

prestige,  effect  of,  180 


professional  accounts,  412-427 
retail  credits  and  collections,  385- 

395 
stages  of,  180 
typical,  analyzed,  233-242 

Canadian,  by  bank  draft,  238 

drafts,  regular  use  of,  234 

mail-order  house,  235 

manufacturer,  236,  239 

statement,  "red  ink,"  235 

wholesale  house,  233 
ultimatum,  221-232 

agency  draft,  form  of,  231 

agency,  house,  221-225 

agency,  outside,  228-230 

attorney,  local,  as  collector,  230 

bank  as  collector,  232 

registered  letter,  226 

telegrams,  226-228 

telephone,  225 
urgent,  209-220 

drafts,  common  cause  of  com- 
plaint, 216 

drafts,  good  method  of  sending, 
213 

drafts,  making  effective,  209 

drafts,  objection  to,  211 

drafts,   refused,  211 

"general  manager"  letter,  216 

legal  action,  warning  of,  217 

methods,  209 

suit,  threats  of,  219 
war  time,  243-248 

acceptance  not  accepted,  245 

drafts  not  paid,  245 

letter,  "last  chance,"  247 

letters,  first  and  second,  244 

strenuous  conditions,  243 

suggesting  resort  to  law,  246 

ultimatum,  248 
wholesale  house,  249-256 
wholesaler,  form-letter  book,  249- 

256 


\ 


462 


INDEX 


Professional  accounts,  collection  of, 
412-427 

collector,  function  of,  412 
doctors, 
adopting  business  methods,  417 
appeal  to  good-will,  424  425 
best  time  for  collections,  426 
collector,  using,  426 
difficulties,  413 
etiquette,  427 
force  of  habit,  418 
fourth  and  fifth  request,  422 
promptness  and  regularity,  420 
psychology  at  time  of   "sale," 

417 
records,  necessity  for  good,  418 
resale,  need  of,  416 
resale,  time  for,  421 
seriousness  of  problem,  412 
statement,  letter  with  first,  420 
statements,    second    and    third, 

421 
strength  of  case,  415 
lawyers,  427-428 
resale  methods,  428 
strength  of  case,  427 
Promises,  improper,  28 
Property  statement,  65 
correspondence    relative    to    first 

order,  67-69 
demanding  information,  70,  71 
Proposals,  collection, 
cutting  down  order,  90-92 
following  up  part  payments,  94 
"helping  the  South,"  96-99 
settlement  of  old  debt,  95 
tactful  rebuke,  100 
turning  down  an  old  customer,  93 
Psychology  of  collection,  125-178 
appeals    (See  "Appeal") 
attention  value,  137 
chart  of,  126 

"dead  beats,"  handling,  132 
diplomacy,  134 


doctor's  problem,  417 
draft,  attention  value  of,  139 
interview,  128 
letters,  132 
freak,  objection  to,  139 
personal  reference  in,  138 
requisites  of  good,  136 
methods  useful   in  any  business, 

135 
personality  behind  the  appeal,  133 
resale   enlarges   study   of,   25 
retail  credit  interview,  130 
service,    establishing    impressions 
of,  127 

telegram,  attention  value  of,  139 
"tone"  of  the  appeal,  134 
Publications,    selling   on   instalment 
plan      (See    "Instalment    collec- 
tions") 


INDEX 


463 


Questions,  use  of,  in  writing  letters, 
443 


Rating, 
aiding  to  restore,  146 
credit, 

factor  in  making  payment,  36 

memoranda  to  sales  department 
on  changes  in,  319 
Records, 
charges  and  credit,  318 
good,     foundation    of    collection 

system   for  physicians,   418 
information  for  future  reference, 

318 
ledger,  318,  320 
of  account,  320 

collections  cards,  323 

ledger,  321 
retailer's  credit,  396 


Reform,  collection,  need  of,  1-7 
business  situation,  i 
capital,  methods  of  increasing,  6 
change    from    credit  to    a    cash 
basis,  2,  3 

educating  customer,  3 
change  not  automatic,  2 
co-operation,  7 
efficiency  texts, 

collect  money  due,  6 

increase  turnover  of  stock,  5 
methods  of  new  business,  5 
policy, 

need  of  a  sound,  6 

successful  collection,  4 
rising  prices,  effect  of,  on  capital 

requirements,  i 
"the   time   to  put  our  house   in 

order,"  4 
Refusal  to  ship  goods,  74-82 
good-natured  appeal  to  settle  pre- 
vious invoice,  78 
holding  up  the  order,  74 
last  appeal  for  settlement,  81 
letter    requesting    remittance    to 

bring  within  credit  limit,  78 
pending  settlement,  81 
proposing  instalments,  80 
ultimatum,  79 
Refusing  credit,  58-64 
asking  additional  capital,  60 
asking  cash  with  first  order,  61 
asking  part  cash  in  advance  and 

balance  on  delivery,  62 
cash  customer  asking  credit,  62 
customer's    own    good,    example 

when  for,  58 
stock  covered  by  mortgage,  63 
tactful  refusal,  example  of,  58 
Registered  letter,  226 
Relapse,  preventing,  45 
Reminder, 
form  of,  187 
personal  letter,  188 


stage  of,  184 
letters,  examples  of,  188-190 
letters,  series  of  crisp  collection, 

191-194 
rubber  stamps,  185 

series    of    stronger    reminders, 

194-195 
special  stickers,  185 
Reports, 
salesman's, 
new  customer,  116 
to  collection  department,  113 
verifier's,    instalment    collections, 

372.  373 
Reputation, 

credit,  goods,  and  service,  37 
factor  in, 
getting  the  right  goods,  37 
making  payment,  36,  39 
Resale, 
appeal  to  self-interest,  153 
books  on  instalment  plan,  364 
correspondence  school  collections, 

353 
principle  of,  23-41 

appeal  and  suggestion,  25 

application  of,  25 

carrying   sales    arguments    into 
credit  period,  28 

"collection  is  resale,"  23 

collect   while   mental   image   is 
fresh,  33 

credit,  goods,  and  service,  37 

creditor's  rights,  does  not  aban- 
don, 35 

credit      system      distinguishing 

mark  of  civilization,  26 
critical  moment,  31 
familiar   illustrations    of,    28 
getting  the  right  kind  of  goods, 

inspirational  folders,  31 
instalment  collections,  29 
letters,  example  of,  32,  33 


464 


INDEX 


Resale — Conttmted 

principle  of — Continued 
methods,  forcible,  expensive,  35 
"money    is    due    and    must   be 

paid,"  29 
payment,      reasons      for     cus- 
tomers', 36 
policy  not  needless  expense,  40 
reawakening  a  state  of  mind,  24 
reputation  and  credit  rating,  36 
reselling  goods  or  credit,  30 
sale  and,  23 
signed    statement    that   job    or 

service  is  satisfactory,  34 
"simple"  policy  most  expensive, 

41 
study  of  debtor's  psychology,  25 

time  to  use,  31 

value  of,  25 

stage  of,  181 
Respect, 

arouse,  requisite  of  good  collec- 
tion letter,  136 

loss  of,  means  loss  of  trade,  14S 

maintaining,  144 
Retail  collections,  396-405 

card  record  of  customers,  396 

credit  record,  396 

method  of  a  small-town  merchant, 
404 

Ruedebusch  system,  396-404 

statements,      getting      customers 
used  to,  405 

transfer  to  Doubtful  Accounts,  402 
Retail  credits,  385-395 

cash  price,  387 

charge  accounts,  388 
meaning  of,  392 

granting,  389 

objections  to  long,  393 

psychology  in  interview,  130 

selling,  387 
charge  account.  390 
30-day,  reason  for,  395 


service  of  store,  385 
teaching    customers    to    appre- 
ciate, 386 
wholesaler's  interest  in,  14 
Retailers, 
sales  direct  from  manufacturers, 
collection  problem,  21 
Routine,  collection  department    (See 
"System  for  a  collection  depart- 
ment") 
lax,  resulting  in  mistakes,  42 
Ruedebusch  system,  396-404 
series  of  letters,  400-404 


Sales    (See  also  "Resale") 

campaign,    publisher    selling    ex- 
pensive set  of  books,  369 

enlarge,  by  selling  to  poor  credit 
risks,  21 

forced,  collections,  28 

graphical   representation  of,  and 
collections,  11 

instalment  plan, 
correspondence  courses,  351-361 
general   publications,   362-366 
special  publications,  367-384 

mail-order,  336-350 

percentage  of,  required  to  main- 
tain credit  department,  14 

problems  of  increased  volume  of, 
20 

sale  and  resale,  23,  181 

reawakening  a  state  of  mind,  24 
Sales  department,  co-operation  with, 
1 10-124 

determining  sales  policies,  no 

failure  to  co-ordinate  means  loss, 

III 

Salesman, 
advising  as  to  collection  methods, 

120 
as  collector,  121 


INDEX 


465 


Salesman — Continued 
constructive  credit,  119 
educating  customer  as  to  terms, 

"5 

educating,    to    see   advantage   in 

sound  credits,  8 
evils  of  forced  orders,  118 
friendly  letter  to  delinquent,  122 
how  he  can  help,  113 
information   regarding   customer, 

114 
interests,  1 13 
linking  arms  with,  112 
new  customer  report,  116 
persuading  to  co-operate,  123 
"reselling  the  house"  after  delin- 
quency, 119 
special  school  conducted  by  credit 

manager,  372 
training,    to    avoid   overstocking, 

117 

watching  the  customer,  120 

Sales  plan    (See  "Marketing  plan") 
Savings,  appeal  to,  136,  137,  172 
School, 

correspondence       (See     "Corre- 
spondence courses") 

special   salesman's,   conducted  by 
credit  manager,  372 
Scott  Paper  Company,  186,  188,  267 
Self-interest, 

appeal  to,  136 

resale,  appeal  to,  153 
Sentences, 

long  and  short,  in  writing  letters, 

443 
Service, 
constructive,  102-109 
envelope  inserts,  108 
house  organ,  in,  108 
letters,  example  of,  105-107 
offering,  105 
'selling"  the  discount  102-104 


**, 


establishing  impressions  of,  127 
industrial,  from  banks,  309 
payment,  reason  for  making,  39 
reputation  a  factor  in  getting,  37 
retail  store,  385 

charge  accounts,  388 
cost  of,  14 

teaching    customers    to    appre- 
ciate, 386 
Shame, 
appeal  to,  137,  164 
family  affection,  166 
phrases  that  awaken,  165 
Sherwin-Williams  Company,  308 
Shipment,    refusal   to   make,    74-82 
(See     also     "Refusal     to     ship 
goods") 

"Short  run"  methods  of  collection, 
42 

Specialty  manufacturer, 
procedure  of,  239 

Squibb    Pharmaceutical    Company, 
337 

Stages  of  collection  procedure,  180 
(See  also  "Procedure,  collec- 
tion") 

Standing,  appeal  to,  146 
Statement, 
attention  value,  137 
credit,  request  for,  83-89 
refused,  86-89 

where     customer     refuses    in- 
formation, 83 
financial,    barometer    of    a    mer- 
chant's business,  93 
getting  the  customer  used  to,  405 
notification,  183 
property,  65 
correspondence  relative  to  first 

order,  67-69 
demanding  information,  70,  71 
meeting  objections  to,  66 


466 


INDEX 


■■I 


Statement— Con/mwerf 
"redinV'235 

routine  method  of  handling,  333 
sticker    to    prevent   relapse   into 

former  lax  habits,  45 
use  by  wholesale  house,  233 
Stickers,  45,  185 
Stock  of  goods, 
mortgage    on,    refusing    credit 

when  covered  by,  63 
reduction  of,  a  means  of  increas- 
ing capital,  6 
turnover,  5 
Story,  suggesting  action  by,  144 
Success,  appeal  to,  137,  173 
Suits     (See  "Legal  action") 
Surprise,  principle  of,  137,  175,  372 
Symptomatic    detail,    attention    to, 

432 
System  for  a  collection  department, 
313-335 
adaptability  to  conditions,  315,  316 
avoiding  unnecessary  communica- 
tions, 335 
branch  office,  316 
common  features,  317 
credit  card,  form  of,  326 
credit  files,  323 
division  of  labor,  320 
equipment,  six  items  of,  320 
follow-up,  320 
inexpensive  routine,  321 
interval  between  steps,  330 
invoice, 
file,  325 

routine  of  handling,  334 
ledger, 
card,  form  of,  324 
correspondence  folder,  327 
mailing  schedule,  331 
"master  sheet"  method,  329 
maturity  file,  328 
necessary  operations,  318 
central  correspondence  file,  318 


duplicate  invoice  file,  318 
file  of  credit  information,  319 
file  of  ledger  information,  318 
information    regarding    claims 

and  adjustments,  319 
maturity     file     for     follow-up 

purposes,  319 
memoranda  to  sales  department 

on  doubtful  accounts,  319 
record  of  charges  and  credits, 

318 
record  of  payments,  319 
securing  information,  318 
record  of  account,  320 
collection  cards,  323 
ledger,  321 

relation  to  claim  department,  329 
schedule  for  ledger  examination, 

333 
solving  the  big  problem,  320 
specifications       for      department 

routine,  333 
st;.,.ements,   routine   of   handling 

333 
value  of,  313 
variations,  reason  for,  313 


INDEX 


467 


Tact,  psychology  ot  interview,  128 
Telegrams, 

attention  value,  139 

use  in  collections,  226-228 
Telephone,  use  in  collections,  225 
Terms,   educating  customer  as   to, 

"5 
Test  of  efficiency, 

credit  department,  8-16 
Tickler  file,  328 

Trade  acceptances    (See  "Accep- 
tances, trade") 
Trade  outlets,  enlarging,  40 


Turnover  of  stock,  5 
increased,  reason  for  making  pay- 
ment, 39 
value  of,  to  merchant,  38 

U 

Ultimatum, 
agency,  house,  221 
agency,  outside,  228 

appeal  by,  229 

draft,  231 

letters,  221-225 

service,  230 
bank  as  collector,  232 
local  attorney  as  collector,  230 
registered  letter,  226 
telegrams,  226-228 
telephone  in  collections,  225 
Urgency,  phrases  that  suggest,  169 
Urgency,  stage  of, 
drafts, 

common  cause  of  complaint,  216 

good  method  of  sending,    13 

making  effective,  209 

objections  to,  211 

refused,  211 
"general  manager"  letter,  216 
methods  employed,  209 
threats  of  suit,  219 
warning  of  legal  action,  217 


Verifier's  report,  372,  373 
Voucher  check,  335 

W 

War  time  procedure, 

**last  chance"  letter,  247 

meeting  strenuous  conditions,  243 
acceptance  not  accepted,  245 
drafts  not  paid,  245 
first  and  second  letters,  244 
suggesting  resort  to  law,  246 

ultimatum,  247 
Weekly  payments, 

special  arrangement,  80 
Western    Union    Telegraph    Com- 
pany, 226,  227 
White    Swan    Spices    and    Cereals, 

Ltd.,  213,  243 
Wholesale  house, 

collection  procedure  analyzed,  233 
Wholesaler, 

drafts,  use  of,  234 

procedure,  249-256 

"red  ink"  statement,  235 
Wilson  Brothers,  300 
Writing     letters      (See     "Corre 

spondence,"  "Letters") 
Wrong-d^ing,  dislike  of,  24 


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